Bernstein's Sacconaghi cuts Tesla (TSLA) estimates to 'significantly' below consensus on EV demand issues

Bernstein analyst Tony Sacconaghi lowered fourth-quarter and full-year estimates on Tesla (NASDAQ: TSLA) to numbers that are “comfortable below consensus” as the company “increasingly appears to have a demand issue.”

Sacconaghi believes Tesla has finally started to experience slowdown after the electric vehicle (EV) maker cut prices in China and the U.S., and “purportedly” decreased China production. The price cuts are negatively impacting average selling prices (ASPs) by 2.6%, or $1,400 per EV unit, the analyst added.

“All else equal, this points to a 200 bps decrease in automotive gross margins. We suspect the net impact will be lower, but believe that consensus estimates for automotive gross margins improving 110 bps sequentially in Q4 may be at risk,” the analyst said in a client note.

Moreover, Sacconaghi believes Tesla will be forced to cut prices again in 2023 to boost EV demand, as well as introduce permanent cuts in the U.S. to qualify for Inflation Reduction Act (IRA) rebates.

On a more positive note, the EV maker could see its margins expand due to:

1. Improving margins in TX and Berlin ($900/car);
2. Manufacturing improvements (including lower input & logistics costs - perhaps up to $1,000/car);
3. Opex leverage (~$1,100/car);
4. IRA tax credits on cell manufacturing (up to $625/car).

“On net, we believe TSLA has the potential to offset $2,000-3,600/car in price cuts next year, though much of it could be in op ex & tax credits,” Sacconaghi added.

Sacconaghi’s new FQ4 forecast now calls for earnings per share of $1.17 on revenue of $25.3 billion, below the average analyst estimate of $1.26 on revenue of $26.1B. For FY23, Bernstein projects EPS of $4.96 on revenue of $111B, again below the consensus of $5.59 on sales of $116B.

“Given TSLA's pullback YTD, we see current risk/reward on the stock as more balanced, though still somewhat negative, due to Tesla's absolute valuation, and the increasing risk of downward revisions amid potential demand challenges,” Sacconaghi concluded.

Tesla stock, which Bernstein rates as Underperform with a $150 per share price target, closed at $179.82 yesterday.

By Senad Karaahmetovic

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