Goldman Sachs issued a research note late Tuesday commenting on Tesla’s launch of new, cheaper versions of its Model 3 and Model Y vehicles, the company’s two best-selling models.
Analyst Mark Delaney reaffirmed a Neutral rating and a $425 price target, saying the new variants offer “good value in general” but noted concern that the price gap with existing trims is smaller than expected.
The cheaper variants omit several features found in higher-end trims, including the panoramic roof, ambient lighting, second-row display, manual-folding mirrors, and front and rear light bars on the Model Y.
In the US, the Model 3 now starts at $36,990, while the Model Y begins at $39,990.
Tesla shares fell more than 4% on Tuesday closing at $433. As of press time, the stock is trading nearly 1% higher in Wednesday’s pre-market session.
Tesla‘s GigaBerlin head Andre Thierig confirmed earlier this week in an internal meeting that the model will also be produced in Germany.
However, Tesla has only listed the new variants on its US website.
While noting that the price for the new Standard variants is “10-15% lower than the prior entry-level trims,” Delaney showed concerns on the pricing strategy between the different trims.
“While we think the broader 3/Y lineup offers good value in general (based on features like acceleration and safety), the degree of differentiation on price and features/form factor for the Standard trims is more limited than we had initially expected for Tesla’s lower cost models (although Tesla’s CEO suggested on the last earnings call that the lower cost version was going to be a variant of the Model Y),” he wrote.
Goldman Sachs’ analyst recalled that the Elon Musk-led company’s initial plan was to develop a brand new model (Model 2) and not a cheaper trim of existing models.
“Recall that at one point Tesla was aiming to produce an all-new model with a cost that was about 50% lower than the 3/Y platform (and the path to achieving this was a key aspect of its March 2023 investor day),” Delaney wrote.
Tesla shelved the idea, with Elon Musk and the management team confirming publicly last year that they would not pursue a separate lower-cost model.
“The company then noted on its 1Q24 call that the new models would instead use aspects of its current models, which would result in reduced cost savings relative to an all-new platform but allow for better utilization on the current manufacturing lines plus a faster time to market,” the analyst said.
Delaney said Goldman Sachs sees the new trims “may result in a somewhat limited effect on incremental volumes.”
“We show volume by price band analysis in this note, and the relatively moderate cost reduction (especially with IRA credits gone) coupled with reduced features for the Standard trims may result in a somewhat limited effect on incremental volumes,” he wrote.
