BofA cuts Tesla to $130 as demand concerns rise with competition

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Bank of America reiterated a Neutral rating on Tesla (NASDAQ:TSLA) and cut its price target on the EV automaker to $130 (from $135) as the stock has declined sharply since the end of 3Q22 amidst investor concerns on demand and increased competition in the market. These concerns have been further fed by price cut announcements across China, the US, and Europe. This all aside from the media storm that has surrounded Twitter since its acquisition by Tesla CEO Elon Musk, which has served as a distraction for TSLA management.

The news garnering the most attention recently is TSLA’s announcement that it is lowering prices by 6% to 20%+ on base models across China, the US, and Europe. TSLA’s price cuts will have ramifications across the Auto sector. The EV giant has higher margins than other OEMs including General Motors (NYSE:GM) and Ford (NYSE:F), and cushion to lower prices even further. This is not BofA’s expectation; however, most OEMs are currently losing money on EVs, and these price cuts are likely to make business even more difficult, just as they are attempting to ramp production of EV offerings.

BofA analysts believe that OEMs will have to reevaluate investments and whether they generate sufficient returns should EV pricing prove less favorable. They expect Ford and GM will continue down the current path but will have to seek ways to build EVs even more cost-efficiently.

With a lowered expected price per unit and an increase in 2023 volume estimates, Bank of America expects an 18% bump in expected revenue to $100 billion in 2023.

Shares of TSLA are up 3.04% in pre-market trading on Tuesday.