By Sam Boughedda
Following news on Monday that Tesla (NASDAQ:TSLA) has cut the prices of its Model 3 and Model Y in China, RBC Capital analysts told investors bearishness on the company's shares has increased primarily on demand in China and the price reductions.
"The company has pulled the pricing demand lever in China," wrote the analysts, who have an Outperform rating and $325 price target on Tesla. "The starting price for a Model 3 RWD is now 265,900 yuan post-subsidy ($36,660) from 279,900 yuan ($38,590) and most M3 variants seem to have a ~5% cut, while the starting price for a Model Y RWD was cut to 288,900 yuan post-subsidy ($39,840) from 316,900 yuan ($43,700) or ~9%."
However, the analysts noted that the Model Y RWD price pre-subsidy is "now 299,988 yuan from 316,900 yuan (a -5% cut)."
"Really, to TSLA this is about a 5% cut. As of writing, TSLA stock is down ~5% vs. S&P500 +0.7%. While the pricing actions are likely contributing to the weakness, we believe the stock is also potentially weighed down by a tougher day for Chinese equities (which highlights the China risk for TSLA) and potentially some technical reasons," added the analysts.
They stated that pricing actions appear to bring the Tesla vehicle pricing closer to competitors such as the BYD (OTC:BYDDY) Han EV. They believe bears will likely continue to be concerned about a looming price war, adding that there is "little denying that demand in China has been tougher."
"On the 3Q22 call, Elon also indicated that China was 'experiencing a recession of sorts' and that was causing demand to be a little harder than it otherwise would be. But, he was also very confident in a record 4Q22. While the development of the market is certainly worth monitoring and paying attention to, we are a bit less concerned than bears and believe this can help stimulate demand in China," the analysts wrote.
Tesla shares are down 4% on Monday.