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Tesla Is Offering Discounts. Wall Street Thinks It Has an Issue With Demand.

Bernstein analyst Toni Sacconaghi is seeing some troubling signs that relate to demand for new Tesla vehicles.

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Jade Gao / AFP via Getty Images

Headwinds for
Tesla,
and its stock, appear to be growing.

Bernstein analyst Toni Sacconaghi wrote Tuesday that
Tesla
(ticker: TSLA) “increasingly appears to have a demand issue.”

Tesla shares were off about 2.2% in premarket trading Wednesday.
S&P 500
and
Nasdaq Composite
futures were off about 0.4% and 0.7%, respectively.

Sacconaghi cited recent price cuts in China, incentives in the U.S., and reports that Tesla may cut car production in December from its Chinese plant.

Earlier in the week, Bloomberg reported that Tesla was reducing Model Y production at its Shanghai plant by 20% in December. Tesla responded to local reports, calling the information false—but production plans for the month still aren’t known.

Production at Tesla’s Shanghai plant fluctuates from month to month. Tesla set a record in November—manufacturing more than 100,000 vehicles, according to the Chinese Passenger Car Association. That was up from 77,704 vehicles produced October and up from the prior record set in September of 83,135 vehicles.

The production outlook might be cloudy, but Tesla has cut vehicle prices in China, along with other EV makers. Tesla is also offering U.S. car buyers $3,750 off a vehicle if they take delivery by the end of the year.

The U.S. incentive is likely to manage demand in the country heading into the end of the year. Federal purchase incentives of up to $7,500 a car take effect on January 1. Car buyers, naturally, want to wait for a better deal.

Tesla’s Chinese website is also offering car buyers 6,000 yuan, or about $840 dollars, off a vehicle to take delivery by the end of the year. That incentive is being offered despite a typical year-end buying rush in China. Government purchase incentives in the country go down in January. That’s the case again starting in 2023.

Tesla hasn’t responded to requests for comment about pricing, production, and incentives. It didn’t respond to a request for comment about Sacconaghi’s report.

Whatever the reason for lower pricing, Sacconaghi estimates that the average price Tesla receives for a vehicle will fall by about $1,400 in the fourth quarter. That will cut automotive gross profit margins by about 2 percentage points.

Tesla reported automotive gross profit margins, excluding regulatory credit sales, of about 28% in the third quarter. Margins peaked in the first quarter of 2022 at about 30%.

Sacconaghi rates Tesla shares the equivalent of Sell and has a $150 price target for them. Overall, about 63% of analysts covering the company rate the stock Buy, according to FactSet. The average Buy-rating ratio for stocks in the S&P 500 is about 58%. The average analyst price target is about $289 a share, about 60% higher than recent levels.

Tesla stock remains controversial on Wall Street. Price targets range from about $85 a share to $530. The $418 spread is almost 250% of the current stock price.

The bull-bear spread for
Ford Motor
(F) shares amounts to less than 100% of the current stock price.

Coming into Wednesday trading, Tesla shares are down about 49% so far this year.

Write to Al Root at allen.root@dowjones.com

Credit: marketwatch.com

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