Goldman Sachs Expects More Tesla Price Cuts, Lowers Earnings Estimates Amid Grim Margin Headwinds

Goldman Sachs cut its earnings estimates for Tesla Inc TSLA on Monday to reflect lower average selling prices and gross margins.

What To Know: Goldman Sachs analyst Mark Delaney remains Neutral on Tesla and maintains a price target of $275 on the stock even though he lowered earnings expectations. 

Tesla has repeatedly lowered prices on its vehicles in 2023 and the electric vehicle (EV) maker is likely to continue this trend into next year, according to Goldman.

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"We believe that Tesla could further lower prices in 2024 to support higher volumes which we believe will mitigate the EPS benefit from cost reductions," Delaney said in a new note to clients.

The Goldman analyst expects margin headwinds in the short to medium term to weigh on Tesla's bottom line. Delaney lowered his 2023 EPS estimates from $3 to $2.90 and cut his 2024 estimates from $4.25 to $4.15. He left his 2025 estimates unchanged.

"We are Neutral rated on the stock, with our expectation for near to intermediate term margin headwinds offset by our positive view of Tesla’s leadership position in the industry and long-term growth potential," Delaney said.

Broader factors continue to be positive for EV demand, including rising oil prices and lowered recession expectations. Auto intentions surveys and Google Search trends show that demand is on the rise, Delaney added.

The United Auto Workers (UAW) union strikes are also expected to negatively impact several legacy automakers. Goldman estimated that the strikes could lead to lost revenue of approximately $100 million to $125 million per week at Ford Motor Co F and General Motors Co GM.

"Assuming decremental margins of about 40%, we estimate that the EBIT impact to GM and Ford could be about $40 mn per week each," Delaney said. 

Investors have favored Tesla over legacy automakers in 2023. Tesla shares have more than doubled since the start of the year, while Ford is up just 6% and GM is approximately flat.

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TSLA Price Action: Tesla shares were down 2.47% at $267.64 at the time of writing, according to Benzinga Pro.

Photo: courtesy of Tesla.