Tesla Inc (NASDAQ:TSLA) has triggered a price war in electric vehicles that analysts believe will have “industry-wide consequences”, with a 40% price target cut for the Elon Musk-run carmaker.
This month, the Austin, Texas-based EV manufacturer has slashed the price of its Model 3, Model Y and other models by as much as 20% in the US, China and Europe.
These cuts have “put pressure on all competitors in the mass and premium-entry segment”, in both in EV and vehicles powered by internal combustion engines, said UBS analyst Patrick Hummel.
UBS is forecasting around 40% declines in earnings in 2023.
On the EV side, he expects Tesla, as the cost and technology leader to “continue expanding volumes aggressively, leveraging its superior cost structure over all legacy competitors and smaller EV players”, which is seen as “the beginning of an industry-wide shakeout”.
This comes as US vehicle sales declines for three consecutive months, from 14.9mln in October to 13.2mln in December, while new car dealer inventory kept creeping up, alongside European backlogs having shrunk for EVs and ICE (NYSE:ICE) cars.
Following Tesla’s moves others have started to follow in China and looking across the market, Hummel said his team thinks legacy OEMs such as Volkswagen (ETR:VOWG_p) Group (XETRA:VOW), Stellantis NV (NYSE:STLA, EPA:STLA), Ford Motor Company (NYSE:NYSE:F) and General Motors Company (NYSE:NYSE:GM) “will have to follow, but with higher cost structures, derailing the narrative of EV margin parity”.
A knock-on effect on ICE pricing is also predicted, becoming “much more competitive” as production and inventories have grown while demand has declined towards the end of last year.
The finance arms of US and German OEMs will come under pressure, the analysts expect, with profits in China joint ventures “structurally at risk”.
UBS prefers luxury over premium, with mass OEMs bottom of the pile against the current market backdrop, with auto suppliers seen as “a better place to hide”, with the likes of Aptiv, Vitesco and Valeo (EPA:VLOF) mentioned.
Ferrari (NYSE:NYSE:RACE) is seen as “immune” to the economic cycle and alongside the Italian stallion Porsche AG (F:P911_p) (ETR:P911) is seen as best positioned, with a new €115 share price target upped from €105 to reflect a flat EPS trend in 2023.
Mercedes-Benz is considered the stock with the “most favourable risk/reward, and a ~10% share buyback opportunity on top”, with a target lifted to €79 from €72.
EPS and price target for Tesla were slashed 40% to US$220 from US$350 to reflect the aggressive price cuts – but the analysts see the company as “a clear winner of the industry shake-out thanks to cost and tech leadership”, and so a ‘buy’ rating was reiterated.