Tesla's Aggressive Pricing Strategy To Continue, Says Goldman Sachs Analyst

Tesla's price war this year has already put immense pressure on the entire electric vehicle industry. However, according to Goldman Sachs analyst Mark Delaney, Tesla is likely to continue its current aggressive pricing strategy next year.

 

We believe that Tesla could further lower prices in 2024 to support higher volumes, Delaney wrote in his report. In addition, the analyst also said that if Tesla maintains its current pricing strategy next year, its profit margins will continue to be dragged down.

 

This year, price cuts for Tesla's Model S and Model X have already begun to affect the company. The analyst wrote that although the higher price of the new Model 3 offset some of the impact of the price cuts, the average selling price of Tesla's entire lineup has been lowered, further compressing its gross margin.

 

Delaney believes that the price-cutting in some of Tesla's models will offset the additional earnings per share brought about by Tesla's attempts to lower production costs. Therefore, he lowered his earnings per share forecast for the electric car manufacturer this year from $3.00 to $2.90 and lowered his 2024 earnings per share forecast from $4.25 to $4.15.

 

Affected by this report, Tesla's stock price eventually closed down 3.32% at $265.28 yesterday.

 

However, although Tesla's current pricing strategy did not positively boost its stock price and did indeed put some pressure on its profits, it does not mean that Tesla's choice in terms of price is wrong: After lowering prices, Tesla's regional sales data in key markets for July and August both exceeded the data for the first two months of the second quarter and the Model S and Model X, which had the significant price cuts, recorded a noticeable increase in sales volume.

 

It is worth noting that recently, some insiders pointed out that Tesla is about to make a major breakthrough in integrated die-casting technology. Although Tesla's current integrated die-casting technology has already helped it achieve considerable cost advantages, further breakthroughs in this technology could even halve Tesla's current production costs — Tesla will have greater room for price cuts to further enhance its price competitiveness.

 

Currently, Tesla's integrated die-casting is mainly used to manufacture its Model Y, but in the future, this upgraded technology is likely to be used to produce more low-priced Tesla models or to be used for the production of its electric pickup, the Cybertruck. As more and more low-priced Teslas enter the market, the impact of Tesla's price war on other manufacturers will only increase.

 

In addition, besides reducing production costs, some analysts pointed out that this technology could help Tesla accelerate its R&D progress — with the help of this new technology, Tesla could develop a car from scratch in 18-24 months — compared to the 3-4 years that most of its competitors may need, Tesla's R&D speed will be tripled, and this time difference may help Tesla directly determine the direction of market products.

 

Although Tesla has not yet realized this technological breakthrough, Delaney predicts that Tesla's total deliveries this year will reach 1.842 million units, and in 2024 it will deliver about 2.3 million electric vehicles. Therefore, Delaney did not downgrade his rating on Tesla's stock — he still maintains a neutral rating and continues to maintain a target price of $275.

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