Tesla price cuts place greater emphasis on Q1 margins, says Citi

Citi analyst Itay Michaeli says Tesla’s (TSLA) U.S. price cuts over the weekend of 2%-5% didn’t come as a major surprise but will place an even greater emphasis on the Q1 auto gross margin outcome as a determinant of near-term sentiment. A stronger than expected gross margin outcome in Q1 would support the contention that Tesla’s latest price cuts are coming from a position of cost strength while also possibly reflecting lower input costs, the analyst tells investors in a research note. However, an in-line to softer gross margin outcome could revive concerns over capacity and product aging while placing 2023 consensus estimates at risk, says the firm. At 46-times 2023 consensus earnings estimates, Citi does not this outcome is currently priced into the shares, making for a "less than compelling" risk/reward profile. It keeps a Neutral rating on Tesla. Citi sees a "limited read" to General Motors (GM) and Ford (F) from Tesla’s price cuts given conquest, regional and segment considerations.