Tesla (NASDAQ: TSLA) Giga Texas won over analysts at Deutsche Bank with its robust manufacturing prowess after a tour was given to the firm by the automaker. However, there’s a catch with the positives that would affect the short-term outlook for the company.
Emmanuel Rosner of Deutsche Bank walked away impressed by Giga Texas’s layout, which is “well designed and runs very efficiently,” according to a report from Street Insider. Investors will be pleased to know the automaker is evidently moving forward with Cybertruck-related projects, as Rosner said tooling for the vehicle is being ramped up.
Outside of the Cybertruck, Tesla is continuing to install more production and manufacturing capacity in the plant, which will not only help the company’s overall volume swell to millions of units, but it will also result in cost reductions in the long term. This is where things get dicey.
Rosner does see encouraging developments that could deliver cost improvements in Tesla’s future manufacturing efforts. However, the short-term outlook seems to indicate that Tesla may need “to take additional price cuts in a weakening environment, which could put further pressure on earnings.”
— Tesla New York (@TeslaNY) May 19, 2023
Tesla did lose a bit of its automotive gross margin with the price cuts in Q1, which brought the figure under 20 percent. However, Tesla maintained the drop was “manageable.” Profits will begin to recover as production continues to scale up.
“Mid-term, Tesla confirmed that it is working on developing two new models on its next-gen platform and represent its highest priority at present. We are also encouraged by the targeting combined unit volume of 5 million and we remain bullish on the opportunity presented within the next-gen platform,” Rosner writes.
Moving forward, Tesla’s Giga Texas plant will likely become the automaker’s biggest contributor in terms of production, displacing Giga Shanghai.
Disclosure: Joey Klender is a TSLA Shareholder.
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