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Investors “should be proactively buying” at this point, says Piper Sandler




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

“Tesla took longer than expected to cut prices, but now that price adjustments have been made and now that the valuation has reset, we believe investors should proactively buy TSLA,” analyst Alexander E. Potter wrote in a note to clients on Wednesday. .

Tesla shares have fallen more than 40% in the past three months since CEO Elon Musk bought Twitter. Many Wall Street analysts likened the stock̵[ads1]7;s decline to a “Twitter overhang,” though the company also had other fundamental problems, including a missed vehicle delivery in the fourth quarter.

The electric car manufacturer has since reacted with price cuts in major markets such as China, Europe and the USA. It also reduced prices by as much as 20% with the latest cut on January 13.

The U.S. price cuts moved Tesla’s base Model Y price down from $65,990 to $52,990, according to Reuters calculations. As the note pointed out, however, the discounts could be closer to 30% when considering the $7,500 federal tax credit for purchasing an American-made electric vehicle.

The cheaper prices could boost demand, according to Piper Sandler, which currently has an overweight rating and a $300 price target on the stock. The firm noted that Tesla can now “easily achieve” at least 50% delivery growth by 2023.

“We don’t think most investors appreciate the extent to which lower prices could support Tesla’s market share,” Potter wrote. “This is especially true in the US where lower prices, combined with a $7,500 tax credit, could unlock at least 300,000 units of incremental demand (if not double that).”

In addition, he added, the price cuts could help Tesla “encrypt demand” from competitors such as GM ( GM ), Ford ( F ) and RAM, all of which have chipped away at Tesla’s EV market share in recent years.

“The US auto market has plenty of real estate for Tesla to exploit,” the note said.

Investors “should be proactively buying” at this point, says Piper Sandler

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

Tesla’s cut prices have continued to cause concern about the company’s margins. Wall Street analysts, including Potter, have cut gross margin expectations to adjust for Tesla making less money per sale on its vehicles. Still, Potter argued, lower margins may not be as bad as feared for the automaker.

“We hope that such drastic declines may not materialize due to deflating commodity costs and better margins in Tesla Energy,” he wrote. “More importantly, we suspect that the margin profile for new capacity in Shanghai, Austin and Berlin is higher than many expect.”

Tesla is expected to report 2022 Q4 earnings after the closing bell on January 25.

Josh is a reporter and producer for Yahoo Finance.

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