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: Tesla stock falls, but these bulls aren’t sweating vehicle price cuts in China

Tesla Inc. shares fell on Monday after the company cut prices on several vehicles in China.

The state of China demand has been a key question for the electric-vehicle maker, given competition in the market as well as economic pressures on consumers there. Some analysts have flagged Tesla’s
TSLA,
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falling wait times in China as evidence that the company might be suffering from demand challenges there.

“China is experiencing quite a burst of a recession of sorts,” mostly as relates to the property market, Chief Executive Elon Musk said on the company’s latest earnings call, according to a FactSet transcript.

See also: Elon Musk teases massive Tesla stock buyback as CFO trims forecast for annual deliveries and stock falls

Tesla shares were off 3.6% in midday trading after various outlets picked up on the price cuts, though the stock was off as much as 7.4% earlier in the session. Bloomberg News wrote Monday that the price of the basic Model 3 in China was lowered on the company’s website to 265,000 yuan from 279,900 yuan, while the starting price of the Model Y was reduced to 288,900 yuan from 316,900 yuan.

But Piper Sandler analyst Alexander Potter wasn’t sweating news of the price reductions. In a note to clients, he called them an “inevitability, not a downside surprise.”

Amid all the talk of competition in China, he noted that “most BEV ‘competitors’ sell very cheap cars; they aren’t really Tesla’s peers.”

Potter has an overweight rating and $340 target price on Tesla shares.

RBC Capital Markets analyst Joseph Spak also wasn’t too fearful of the latest move.

“There is little denying that demand in China has been tougher,” Spak wrote. But regarding the latest price cuts, he is “a bit less concerned than bears and [believes] this can help stimulate demand in China.”

In his view, Tesla “is the low-cost producer (though this may be a little bit less the case vs. certain competition in China) so a price cut could potentially be more impactful for competitors than for TSLA itself, which may also add a check towards an all-out price war.”

He has an outperform rating and $325 price target on the stock.

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