Tesla Analyst Says 'Weaponized' Capacity Is Already Priced In: Is Elon Musk Playing Chess While Other Automakers Play Catch Up?

As Tesla Inc TSLA sacrifices margins to drive increased volumes, one analyst says the stock is likely to be stuck in neutral — but the automaker's approach could still be the correct one in the longer term.

The Tesla Downgrade: Berenberg analyst Adrian Yanoshik downgraded Tesla from Buy to Hold and raised the price target from $200 to $210, noting that the firm's buy thesis centered around "misplaced fears of a price war" has been accepted by the market.

"We argued that Tesla can take market share at a gross margin of c25% (excluding credits), which indeed is where we see investor expectations heading for 2024," the Berenberg analyst wrote in a new note to clients.

Yanoshik referred to Tesla's volume advantage as weaponized capacity, but with shares up more than 20% since the firm upgraded the stock to Buy, he's tapping the brakes at least for a little while.

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Despite lowering expectations for the near term, Yanoshik continues to see longer-term upside potential. Although lower gross margins are likely to offset a modest increase in deliveries in 2023, the Berenberg analyst sees increased cost efficiencies driving shares higher down the road. 

"We expect margins to slowly recover as the production mix shifts away from Fremont, California, which suffers from high labor costs, an inefficient layout and dated equipment," Yanoshik said.

The analyst highlighted Tesla's "zonal" architecture and said he expects the Elon Musk-led company's approach to speed up other automaker's zonal transition. 

Yanoshik sees Tesla benefitting from reduced silicon carbide content and greater use of lithium iron phosphate cathodes, as outlined at the company's Investor Day. 

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A continued build-out of production capacity will hurt near-term margins, but should steer the company toward a significant volume advantage.

"This positions them competitively against new electric vehicle (EV) launches as the Berlin and Austin plants ramp up, replicating elements of Shanghai’s low-cost processes," the Berenberg analyst said.

TSLA Price Action: Tesla has a 52-week high of $384.29 and a 52-week low of $101.81.

Tesla shares were down 2.33% at $183.35 at the time of writing, according to Benzinga Pro.

Photo: courtesy of Tesla.