Contrary to Goldman Sachs, Goldman Sachs predicts that the Tesla price war will continue unabated, lowering profit expectations, causing the latter's stock to fall more than 3%.

On Monday, September 18th, Tesla opened low and closed even lower, down 3.32% at $265.28.

Prior to this, Goldman Sachs lowered its profit expectations for the company. In a report released on Monday, Goldman Sachs analyst Mark Delaney wrote:

We believe that Tesla may further reduce prices in 2024 to support higher sales volume, which we believe will weaken the earnings per share growth brought about by cost reductions.

As a result, we have lowered our earnings per share expectations for Tesla in 2023 and 2024.

Goldman Sachs predicts that Tesla's price reduction will have a negative impact on its profits:

On September 1st, Tesla significantly reduced the prices of its S and X models by 15-19%, and lowered the price of the Model Y in China in mid-August. At the same time, Tesla increased the price of the updated version of the Model 3, called Highland, which is now being sold in Europe and China.

It is worth noting that Tesla's new Model 3 Highland version has not appeared in the US market and specific European regions such as the UK. Whether this model will be launched in the US seems to depend on whether it can obtain tax incentives. Initially, Tesla's rear-wheel drive and long-range versions of the Model 3 only received a $3,750 tax credit.

In addition, last month, Tesla lowered the price of its Model S Plaid by 19% in China.

Delaney believes that even with the price reduction, Tesla's sales in the third quarter will still be lower than his previous expectations. In key markets, Tesla's regional sales data for July and August were higher than the first two months of the second quarter, but he has lowered his sales forecast for Tesla in the third quarter to 460,000 units. Boosted by the launch of the Highland version and considering the increase in sales of the S and X models after the significant price reduction, he expects Tesla's sales in the fourth quarter to rebound to 494,000 units. Overall, Delaney expects Tesla's annual delivery volume for this year to reach 1.842 million units.

Taking into account the expected decline in ASP (average selling price) and the impact of price reductions on gross profit margin, Delaney has lowered his earnings per share expectations for Tesla in 2023 and 2024 from the previous $3.00/$4.25 to $2.90/$4.15.

Delaney stated:

We have a neutral rating on Tesla, and our positive view on Tesla's leadership position in the industry and long-term growth potential is offset by the adverse factors encountered in the mid-term profits.

Delaney maintains a target price of $275, slightly higher than the average target price of $270.8 given by Wall Street.

In sharp contrast to Goldman Sachs' caution, Adam Jonas of Morgan Stanley significantly raised Tesla's target price by 60% last week. He stated that by adopting robot taxis and network services faster, Tesla's Dojo supercomputer could increase the company's market value by as much as $500 billion (currently Tesla's market value is about $800 billion). On the day the report was released, Tesla's stock surged more than 10% at one point.

In addition, on Monday morning, Tesla also announced "preliminary discussions" with Saudi Arabia regarding the establishment of a manufacturing plant. The Saudi sovereign wealth fund is a major investor in Lucid, a competitor of Tesla. Goldman Sachs added that Saudi Arabia is attracting Tesla by offering "a certain amount of metals and minerals needed to produce the company's electric vehicles." Tesla currently has six Gigafactories and is searching for a location for its seventh factory.

However, this deal is still in the early stages and there is no guarantee of its success.