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Wells Fargo analyst Colin Langan told clients on Friday that expectations are high for Tesla’s investor day on March 1, especially in regards to the expected announcement of a lower cost EV. However, he noted that producing a cheaper vehicle with the automaker’s typically elevated margins could be a major challenge.
Tesla (NASDAQ:TSLA) is due to host an investor event at its Giga Texas factory on Wednesday, with its “Master Plan 3” due for release. This long-term plan is expected to include the unveiling of a third generation vehicle platform that will allow for the release of a lower cost vehicle at around a $25K to $30K price point.
While Langan sees this as prudent in terms of expanding Tesla’s market share, the timing and margin impact of this potential release remains a question mark. He said that “credible profit/cost targets and launch timing are key” for Elon Musk to address on Wednesday. On that front, he also questioned the company’s ability to cut costs sufficiently to release such a low cost vehicle.
“With much of the interior, body, and infotainment already simplified, the targets to get to a 20% gross margin aren't easy,” he explained. “We also highlight our global powertrain estimate reflects TSLA's blended mix of battery chemistries (NCA & LFP) and the benefit of LT raw material contracts. The estimated cost of the Model Y we tore down was over $20K.”
Langan reiterated an Equal-Weight rating on the stock and a $190 price target, up from a prior $150 target.
“We see modest upside near term from deliveries and likely benefits from added US EV credits. However, we see near-term risks around pricing and possible increased US regulation on Autopilot,” he concluded from a broader investment standpoint, zooming out from the investor day. “Mid-term we are cautious TSLA will have sufficient Model 3/Y demand to meet the large amount of added capacity.”
Shares of the Austin-based automaker fell 3.88% on Friday.
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