Tesla Has Highest Margins of Any EV Maker, Easily Can Use Pricing as Lever, Says Deutsche Bank

Photo: Tesla China

Deutsche Bank has a bullish view of Tesla despite the recent decline in its share price, which was partly due to concerns about the price cuts on its cars in China. However, the company has the highest margins of any electric vehicle manufacturer, so it can easily use pricing as leverage, the firm said.

Recent news of the price cuts for Model 3 and Model Y in China has caused a stir among some investors and analysts. While there are many reasons for this, we should not forget that the company has room for different actions. While the price cuts were not unexpected for some analysts and should not have come as much of a surprise to investors, the timing for this came a little earlier than anticipated. However, there is no reason to view this event as negative. Deutsche Bank believes price cuts in China should boost Tesla's order book as Giga Shanghai is now capable of producing more than 1 million vehicles a year.

Deutsche Bank analysts wrote in a note (via investing.com):
“In respect to the Tesla price cuts, we don't see the move as a big surprise based on our recent discussions and emphasize Tesla has the highest margin of any EV maker, giving it the most cushion to use pricing as a lever. In our view, Tesla is likely facing a mix of weak macro and some level of growing competition in the local market. But all in we believe while Tesla is not insulated from a downturn, its growth and margins could be much more resilient than the rest of the industry in a recession globally given the various levers at its disposal.”

However, while the short-term structure in the country remains challenging due to China's near-recession conditions, Deutsche Bank believes Tesla is still best-placed to deliver strong growth and profitability in 2023 even with price cuts.

© 2022, Eva Fox | Tesmanian. All rights reserved.

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