Investors ‘ought to be proactively buying’ at this point, Piper Sandler says

Tesla (TSLA) stock’s recent decline has reached attractive levels, and it’s time for investors to begin positioning for an upswing, Piper Sandler argued in a brand new note.

“Tesla took longer than expected to chop prices, but now that pricing adjustments have been made and now that the valuation has reset, we predict investors ought to be proactively buying TSLA,” research analyst Alexander E. Potter wrote in a note to clients on Wednesday.

Tesla shares have fallen greater than 40% over the past three months since CEO Elon Musk bought Twitter. Many Wall Street analysts likened the stock’s decline to a “Twitter overhang,” though the corporate also had other fundamental issues arise, including a fourth-quarter vehicle deliveries miss.

The electrical vehicle maker has since responded with price cuts in major markets corresponding to China, Europe, and the U.S. It also slashed prices by as much as 20% with its most up-to-date cut on Jan. 13.

The U.S. price cuts moved Tesla’s basic model Y price down from $65,990 to $52,990, based on Reuters calculations. Because the note identified, though, the discounts could possibly be closer to 30% when considering the $7,500 federal tax credit for purchasing a U.S.-manufactured electric vehicle.

The cheaper pricing could increase demand, based on Piper Sandler, which currently has an Obese rating and a $300 price goal on the stock. The firm noted Tesla can now “easily achieve” at the least 50% delivery growth in 2023.

“We don’t think most investors appreciate the extent to which lower pricing could support Tesla’s market share,” Potter wrote. “This is especially true in the USA where lower prices, combined with a $7,500 tax credit, could unlock at the least 300K units of incremental demand (if not twice that).”

Moreover, he added, the value cuts could help Tesla “poach demand” from competitors like GM (GM), Ford (F), and RAM, all of which have chipped away at Tesla’s EV market share in recent times.

“The U.S. auto market has real ample real estate for Tesla to take advantage of,” the note stated.

Indonesian President Joko Widodo talks with Tesla CEO Elon Musk on the SpaceX launch site in Boca Chica, Texas, May 14, 2022. (Laily Rachev/Indonesia’s Presidential Palace/Handout via REUTERS)

Tesla cutting prices has still raised concerns surrounding the corporate’s margins. Wall Street analysts, including Potter, have cut gross margin expectations to regulate for Tesla making less money per sale on its vehicles. Still, Potter argued, lower margins won’t be as bad as feared for the automaker.

“We’re hopeful that such drastic declines may not materialize, attributable to deflating raw material costs and higher margins in Tesla Energy,” he wrote. “Much more importantly, we suspect that the margin profile of latest capability in Shanghai, Austin, and Berlin is higher than many expect.”

Tesla is predicted to report 2022 Q4 earnings after the closing bell on Jan. 25.

Josh is a reporter and producer for Yahoo Finance.

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