Tesla TSLA Receives PT Boost from RBC Capital as Company Proves it Can Drive Demand Growth While Maintaining 20%+ Margins

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Tesla received a price target increase from RBC Capital to $223. The manufacturer has proven it can drive demand growth for its vehicles while maintaining margins above 20%, which has bolstered the firm's confidence in Tesla.

RBC Capital reaffirmed Tesla's Overweight rating and raised its share price target to $223 from $186. Analysts wrote that the manufacturer has proven it can drive demand growth while maintaining margins above 20%. This will have a positive impact in the short and long term, especially when compared to competitors.

“TSLA is demonstrating they can spur demand growth while maintaining margins above 20%, a positive for the near- and long-term outlook. Competition is responding (Mach E), but we do wonder about the longer-term sustainability of competitor price cuts given more challenging profit margins.”

At this point, Tesla has seen a surge in demand for its vehicles and has even started to raise the price of Model Y in the US. At the end of January, the company raised its price by $500 and did so again last week. According to the amended Inflation Reduction Act of 2022 (IRA), effective Friday, all Model Y options qualify for a $7,500 EV credit. Because of this, Tesla Model Y got a little more expensive, with the Long Range AWD version now $1,500 more and the Performance version up $1,000. However, the change in the IRA's classification of SUVs provides additional opportunities for further price adjustments by the company.

Tesla predicts 1.8 million vehicles to be delivered in 2023, corresponding to +37% year-on-year growth. However, Elon Musk said he sees upside potential to produce 2 million vehicles this year under the right conditions. RBC Capital's model shows deliveries at 1.81 million units. While the management of the company is confident excluding leases and reg credits they will be able to maintain average ASPs above $47,000 this year, RBC models ~$48,500.

© 2023, Eva Fox | Tesmanian. All rights reserved.

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Eva Fox holds zero shares of Tesla, Inc., and currently (at the time of this article's publishing) holds zero options or securities in Tesla Inc. and/or its affiliates.