Tesla price cuts in the U.S., China point to demand 'issue', Bernstein analyst says

Tesla Inc.'s recent price cuts on vehicles sold in the U.S. and China point to a possible demand problem, one that could persist into 2023 and cut down on the electric-vehicle maker's margins.

That's from Bernstein analyst Toni Sacconaghi, one of the few Tesla (TSLA) bears left on Wall Street.

"Tesla increasingly appears to have a demand issue," thanks to rising EV competition, Tesla's "narrow" and expensive product line up, which is reaching saturation, and a weaker global economy, Sacconaghi said in a note released late Wednesday.

Sacconaghi has the equivalent of a sell rating on the stock and a price target of $150, implying a downside around 20% over Wednesday's prices.

According to FactSet, the average price target on Tesla stock is around $289, with more than half the analysts rating it a buy.

Sacconaghi estimated that the cuts will shave off average selling prices globally by about 2.6%, or $1,400 per vehicle.

A net impact will likely be lower, but Wall Street hopes for Tesla margins in the fourth quarter "may be at risk," the analyst said.

"More importantly, we believe that Tesla may need to take additional price cuts in 2023 in China to stimulate demand," and will need to take permanent cuts in the U.S. to qualify for rebates related to the Inflation Reduction Act, the analyst said.

A drop in average prices globally to as low as $50,000 in the next year, from $53,500 in the third quarter, seems possible, Sacconaghi said.

On the other hand, some offsets could emerge to help margins, especially in the newer Texas and Germany factories, manufacturing improvements including lower input and logistics costs, and tax credits on battery cells, he said.

"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 said.

Tesla shares are down about 51% so far this year, compared with losses of around 17% for the S&P 500 index.

Given that pullback, the stock's risk/reward equation is "more balanced, though still somewhat negative, due to Tesla's absolute valuation, and the increasing risk of downward revisions amid potential demand challenges," the analyst said.