UBS Global reiterated a Neutral rating on Tesla (NASDAQ:TSLA) and raised their 12-month price target on the EV stock to $290.00 (From $270.00). The adjustment comes in light of Tesla's ongoing strategy of leveraging its cost advantage and stimulating demand through price reductions.
UBS analysts believe this pricing strategy could potentially provide Tesla with a formidable competitive edge, allowing the company to expand its customer base. This approach may also create challenges for competitors grappling with higher operating costs. However, while this strategy has the potential to be a game-changer, it could cap the stock's upside, keeping it within the boundaries of consensus estimates over the next year.
UBS's projections suggest that Tesla's unit sales are poised to grow by approximately 22% in 2024, reaching around 2.3 million units, with an even more accelerated growth rate of approximately 41% in 2025, culminating in roughly 3.25M units sold. These figures, while impressive, fall slightly short of Tesla's management target of achieving a 50% growth rate.
UBS's 2024 EPS forecast lags behind consensus estimates by approximately 12% but slightly surpasses them by about 4% for 2025. While Tesla remains well-positioned for the future, the analysts suggest potential investors may want to wait for a more favorable entry point.
Throughout the year, Tesla has implemented multiple price reductions across various regions and product lines in an effort to stimulate sales volume. Encouragingly, reports from specific regions and UBS's Tesla price monitor indicate that price reductions have stabilized as of August 2023.
It's worth noting that Tesla recently lowered prices for the Model S and Model X while introducing an updated version of the Model 3 at a higher price point. Older Model 3 versions were also discounted to clear existing inventory. A UBS analysis of Tesla's capacity expansions and historical facility ramp-up rates indicate that aligning pricing with demand could pose limitations on mid-term growth if supply cannot keep pace.
UBS analysts believe that in the mid-term, Tesla will continue to experiment with price elasticity, relying on its cost advantage and financial resources to fine-tune pricing and balance it with supply and demand dynamics. This strategy, though affecting the short-term, may establish a robust foundation for Tesla's long-term success by allowing them to scale up, build a substantial customer base, and exert pressure on competitors with higher battery electric vehicle (BEV) cost structures.
In a separate note, UBS initiated coverage on Rivian Automotive (NASDAQ:RIVN) with a Neutral rating and set a 12-month price target of $26.00 for the EV-focused company. Rivian's focus on electric "adventure" SUVs and pickups leads UBS to anticipate deliveries reaching approximately 500,000 units by 2030, a significant increase from the projected 2023 levels. This growth potential is notable, considering the strong sales performance of Jeep, a prominent internal combustion engine competitor, which has previously approached nearly 1M units in sales.
However, substantial volume increases for Rivian are not expected until the latter half of the decade, coinciding with the introduction of their R2 product. This period could be a pivotal moment for Rivian, akin to Tesla's "Model 3" launch, as it represents an opportunity to offer an attractive and cost-effective vehicle that could substantially expand their market presence.
“We are positive on Rivian's product and opportunity. But with a limited amount of vehicles in the wild and no marketing, brand recognition is low,” wrote the analysts.
Should Rivian manage to surpass consensus estimates of approximately 6.5% gross margins by the fourth quarter of 2024, UBS believes such an achievement could act as a catalyst for their stock, instilling trust in their management and their capacity to execute effectively.
The potential for even greater upside exists if Rivian can achieve a roughly 35% material cost reduction on the R1 model, similar to what was achieved with their electric van.
Shares of TSLA are up 1.29% in mid-day trading Wednesday, while shares of RIVN are down 0.47%.