Longtime Tesla bear Toni Sacconaghi says more price cuts needed to spur demand

Published Wed, Dec 7 20226:22 AM ESTUpdated Wed, Dec 7 20226:47 AM EST

Tesla needed to lower prices amid sliding demand this year — and that may not be the end of the cuts going forward, according to Bernstein. Analyst Toni Sacconaghi, a longtime bear on the electric car maker, reiterated his underperform rating on the stock and lowered his fourth-quarter and 2023 estimates, noting that the company needs to further cut prices to boost demand. "Tesla increasingly appears to have a demand issue," he said in a note to clients Wednesday. "The company has responded by cutting prices in China and the US (for December deliveries), and purportedly reducing production in China." Current cuts in China and the U.S. hurt the average selling price by about $1,400, or 2.6%. Sacconaghi attributed the demand slides to increasing electric vehicle competition and the company's "expensive" and "narrow" product line. The uncertain economic backdrop, which has consumers shifting away from big-ticket purchases like cars amid inflationary pressures, is also hampering the company, he said. Sacconaghi added there could be more price cuts in 2023 to buoy demand in China, while cuts in the U.S. will also need to be taken to qualify for rebates from the Inflation Reduction Act. He said there is the potential for the average price to drop to around $50,000 from $53,000 in the U.S. in the third quarter of 2023. A rollout of lower-priced SR Model Y in the U.S. is also be likely, he said. But Sacconaghi also said there are potential variables that could help pare losses from the price cuts. Improving margins of about $900 per car in Texas and Berlin, as well as lowered manufacturing costs, improved operating expense leverage and IRA credits, could all help offset between $2,000 and $3,600 of price cuts. Still, Sacconaghi's outlook has weakened as a result. He said the fourth quarter should bring $25.3 billion in revenue and $1.17 in per-share earnings, placing both below consensus expectations. Meanwhile, the full-year should be similarly under expectations, with him expecting revenue at $111 billion and $4.96 in total earnings per share for the year. The analyst has a price target of $150 per share on Tesla, implying 16% downside from Tuesday's close. — CNBC's Michael Bloom contributed to this report.