© Stocksak. Deutsche Bank Unsurprised Following Tesla (TSLA) Price Cuts
By Michael Elkins
Tesla (NASDAQ) shares are down 0.73% in premarket trade on Tuesday. Price cuts on Monday saw the electric vehicle stock close down at 211.25, down 1.49%. Chinese electric vehicle stocks followed suit with declines averaging 15% compared to the NASDAQ’s (NASDAQ:) +1%. Deutsche Bank attributes this weakness to negative surprise around the new Chinese leadership selection, lack of updates surrounding COVID zero policies, and concerns following Tesla’s price cuts.
Tesla lowered the domestic China prices for their Model 3 & Model Y by about 5% Monday. Although the timing was a bit earlier than expected, the cuts were not unexpected. Deutsche Bank believes this will boost the order book since the Shanghai gigafactory can now produce 1m vehicles per year.
Deutsche Bank analysts wrote in a note, “In respect to the Tesla price cuts, we don’t see the move as a big surprise based on our recent discussions and emphasize Tesla has the highest margin of any EV maker, giving it most cushion to use pricing as a lever. Our view is that Tesla will likely be facing a mix in weak macro and increasing competition in the local marketplace. But all in we believe while Tesla is not insulated from a downturn, its growth and margins could be much more resilient than the rest of the industry in a recession globally given the various levers at its disposal.”
CEO Elon Musk mentioned near-recession conditions China in his recent earnings call. In a call with Deutsche Bank Tesla also spoke about how overall weakening demand is affecting all automakers in the region. The EV market has become much more competitive. China is seeing new products that are credible and expanding their capacity relative to Europe and the U.S.
In Q4, many new premium models are being introduced by Nio (NYSE;), Li Auto, and Xpeng. Tesla is essentially selling older models that are very popular, but have a natural ceiling in demand after several price increases earlier this year.
Although the near-term environment is challenging for TSLA in the short-term, Deutsche Bank believes that the company is best positioned for strong growth and margins in 2023, even with the price reductions.