Berenberg upgrades Tesla, says price cuts are 'investment in growth'

Berenberg has upgraded Tesla to ‘buy’ from ‘hold’, pointing to "misguided pricing concerns" and a share price collapse since the bank’s last update.

Berenberg said Tesla’s price cuts are an "investment in growth" and reflect its cost leadership strategy.

"New plants offer multi-year opportunity in capital and labour efficiency, as larger castings reduce robot counts and welding points," it said.

"Moreover, we think that ramping its battery cell production offers the company further economies of scale, although we understand that this remains challenging. Tesla, in our view, could take market share at a gross margin that exceeds 25%."

Berenberg said that after a price-led "blip" in 2023, it expects margins to recover as the production mix shifts away from Fremont, California, which suffers from high labour costs, an inefficient layout and dated equipment.

The bank said it was sharply lowering its estimates - reducing 2023 earnings per share by 25% - and cutting its price target to $200 from $255, but upgrading its recommendation following the stock’s 30% decline over the last three months.

"Technical pressure from CEO Elon Musk’s Twitter purchase and China disruption risks now appears loaded into the share price, while we think that Tesla’s 1 March investor day offers near-term catalyst potential," it said.