Tesla (NASDAQ: TSLA) price cuts are being labeled as under-appreciated by analysts at Piper Sandler, who are indicating investors “should be “proactively buying” shares.
Following the announcement of Tesla’s price cuts in mid-January, analysts and others began to speculate that it was a move to combat weakening demand for its vehicles. However, the cuts have helped Tesla cut inventory levels significantly in the United States, and when combined with government-backed incentives, could offer as much as $20,500 in discounts.
Piper Sandler analysts believe the sentiment from consumers behind the price cuts is not being fully recognized. The firm believes the price cuts could open doors for 300,000 additional unit sales for the automaker this year, “if not twice that.”
“We don’t think most investors appreciate the extent to which lower pricing could support Tesla’s market share,” it said.
Tesla garners new addressable market through price cuts, incentives
Recognizing that the price cuts would lower the automaker’s gross margin, which was 27.9 percent in Q3 2022, Piper Sandler adjusted its estimates to 24.7 percent, according to MarketWatch. “We are hopeful that such drastic declines may not materialize, due to deflating raw material costs and better margins in Tesla Energy.”
Although the price cuts effectively reversed last year’s increases, Piper Sandler said the company took “longer than expected” to make the changes. However, the automaker was not in any condition to push prices downward, as demand was healthy, and supply chain bottlenecks that Tesla was continuing to deal with pushed the company to keep its prices high through most of 2022.
“Tesla took longer than expected to cut prices, but now that pricing adjustments have been made, and now that the valuation has reset, we think investors should be proactively buying” shares, Piper Sandler also said in its note.
Piper Sandler cut its price target on Tesla to $300 from $340.
Tesla shares were trading at $127.63 at 2:19 PM on the East Coast, down less than 1 percent.
Disclosure: Joey Klender is a TSLA Shareholder.
Keyword: Tesla price cuts are under-appreciated, investors should buy shares: Piper Sandler