Tesla TSLA Has More Levers to Pull than Any OEM, Jefferies Believes

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Tesla has more levers to pull than any OEM, Jefferies believes. The firm maintains a Buy rating on TSLA and sees an upside potential of 40% from current levels despite a bumpier growth trajectory.

Tesla shares posted a 7.43% gain on Tuesday, closing at $131.49. Jeffries analyst Philippe Houchois maintained his Buy recommendation on Tesla shares, although he lowered the firm's price target from $350 to $180, a 48% reduction. However, the new target price still suggests an upside potential of 40%. The analyst is convinced that Tesla is leading the industry towards a better business model, but its growth trajectory will be bumpier.

Houchois cited affordability as a key issue in the electric vehicle space, so lowering the price of Tesla vehicles is critical to the development of the entire industry. He said this aggressive round of price cuts reversed the price increases that were applied multiple times in 2022, but it confirmed that Tesla has more leverage to pull than any OEM. The speed of the company's development remains the most important competitive advantage.

“Most OEMs are just emulating Tesla, at various paces, and speed remains a critical competitive edge for Tesla in an industry largely stuck in zero to negative sum game of transition,” Houchois wrote.

The analyst added that most companies are focusing on product lineups instead of maximizing scale and performance. Houchois noted that speed and simplicity are Tesla's main competitive levers for increasing availability and resource efficiency.

The analyst cut his 2023 delivery estimate to 1.7 million units, and core auto gross margin to 24% or $2,500 per unit below 2022 levels. The revised target price factored in the lowered estimates and the higher cost of risk as well as the company’s unique profile of growth, margins, ROIC and FCF, he added, according to Benzinga.

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