Goldman Sachs Cuts Tesla Margin Outlook

Goldman Sachs lower the 2023 and 2024 EPS estimates for Tesla, mostly on lower ASPs and in turn auto gross margin ex credit assumptions (driven by lower prices for S/X and to a lesser extent Model Y, and partly offset by higher Model 3 ASP assumptions). Tesla materially reduced S/X pricing on 9/1 by 15-19%, and reduced Model Y pricing in China in mid-August (and has been discounting inventory on hand in other markets like the US this quarter). However, Tesla raised pricing on the Model 3 with the refreshed version (Highland) that is now being sold in Europe and China.

In addition, although July and August regional Tesla sales data was higher in key geographies than the first two months of 2Q, Goldman Sachs reduced 3Q23 volume estimate to 460K to better reflect lower S/X demand and the impact of the changeover for the Model 3 Highland. This is consistent with weekly insurance data in China. However, expect a rebound to 494K in 4Q23 driven by the Highland launch, and an assumption for improved S/X volumes post the large price cuts. This brings the 2023 delivery forecast to 1.842 mn.

Tesla could further lower prices in 2024 to support higher volumes which will mitigate the EPS benefit from cost reductions. The 2024 volume assumption of 2.275 mn is unchanged. Goldman Sachs are Neutral rated on the stock, with the expectation for near to intermediate term margin headwinds offset by positive view of Tesla’s leadership position in the industry and long-term growth potential (including with software, services and opportunity in related markets like Energy).