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Tesla’s price cuts could drive 53% volume growth this 2023: Bank of America

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Bank of America analysts have noted that Tesla’s recent price cuts to its lineup of vehicles would likely result in higher sales volume growth this year. The analysts shared their stance in a note on Tuesday. 

Tesla has caught headlines recently after the company initiated a round of steep price reductions for its lineup of vehicles. The price cuts, which took effect in multiple markets across the globe, are expected to help the company gain more orders for its electric cars. 

The analysts noted that while the steep price reductions — which range from 6% to 20% — would likely cut into the Model 3 sedan and Model Y crossover’s margins, the strategy could result in Tesla seeing a 53% increase in volume this 2023. For context, Bank of America’s previous estimate for Tesla was 17% growth. 

“This pushes revenue to $100bn in 2023, up 18% from our prior model. Based on the adverse impact of price cuts offset by an average incremental margin on the increase in sales that we estimate at 30%, our earnings estimates move moderately lower in 2023, and our price objective is now $130 (was $135),” the analysts noted

The strategists also noted that while Tesla’s self-funding status is arguably unique among its competitors in the EV space, it is less notable among competitors from legacy auto. Potential headwinds like a downbeat macro environment, higher interest rates, and a possible recession could also adversely affect the overall EV market.

The firm estimated that with the price reductions in place, Tesla could make about 10% to 20% less per vehicle sold. The Bank of America analysts also adjusted their earnings-per-share estimates for this year and 2024. Overall, Bank of America maintained that Tesla, at its current state, is fairly valued considering Elon Musk’s distractions due to his Twitter acquisition. Thus, the firm kept its “Neutral” rating on the stock. 

Disclosure: I am long TSLA. 

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Tesla’s price cuts could drive 53% volume growth this 2023: Bank of America
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