Tesla’s massive price cuts implemented at the beginning of this year in key markets like the United States, China, and Europe have sent shockwaves across the industry.
The price reductions forced some competitors to follow suit even though they had nowhere near the same margin depth as Tesla. While things have largely settled since January, Tesla still has room for more price cuts in the short term, analyst Dan Ives from Wedbush Securities believes.
In an interview with TD Ameritrade Network, Ives noted that Tesla’s Model 3 and Model Y price cuts especially have paid major dividends for the EV maker.
“That really, fundamentally was the best decision they’ve made, in terms of cutting prices to stimulate demand. I think ultimately that’s still paying dividends today,” Ives said.
Mind you, he added that Tesla will have tighter profit margins going forward, and we’ll learn how tight on April 19, when the company is scheduled to report full first quarter financial results. “The big question will be margins as cutting prices will have an impact on this front,” he said in a note to clients on April 2.
Despite the slimmer anticipated profit margins, Dan Ives seemed inclined to believe that Tesla may cut prices again sometime this year.
“Their margin, it gives them so much more flexibility than other vendors to do these price cuts,” Ives said. “And I think that really continues to be the story here, especially as battery costs ultimately get reduced over the coming months and year.”
The Wedbush analyst stated that even after the price cuts earlier this year, Tesla has much higher margins than the industry average, and that would allow it to cut prices even more if it wanted to.
A long-time Tesla bull, Dan Ives said that demand appears very solid. He also downplayed the fact Tesla’s stock price dropped a bit after the company released its Q1 2023 numbers, describing it as a knee-jerk sell after the stock almost doubled so far this year.
As for the company’s annual growth target of 50 percent, Ives said Wall Street investors focus more on the 1.8 million vehicles Tesla has forecast for 2023. “I think if you look at that, Tesla is on or actually ahead of that pace,” he said.