Tesla Price Cut Raises Demand And Profit Questions, Says BofA/Merrill

BofA Merrill Lynch analyst John Murphy said Tesla's (TSLA) reported Q4 Model 3 production of roughly 61,000 units implies a weekly production rate of just over 5,000 vehicles, which was largely in line with the company's prior commentary of a 5,000 unit/week production run rate sustainability, but below its indication that it was on the path towards a 7,000 unit/week rate. 

Given the relatively slower than anticipated progress on the production ramp of the Model 3, he expects it will take some time before Model 3 production reaches mass scale, Murphy stated. Additionally, he believes that the announcement that Tesla will be reducing prices across its U.S. lineup by $2,000 could suggest that what many bulls assume to be a substantial backlog "may be less robust."

The price cut would equate to about an incremental $800M profit headwind based on consensus deliveries of about 400,000 vehicles for 2019, added Murphy, who keeps an Underperform rating on Tesla shares with a price target of $220.