Debate continues on whether Tesla Motors Inc (NASDAQ:TSLA) will be able to live up to the high expectations investors now have for it. But the company is starting to convince some analysts, like those at Wedbush, who hosted an investor tour of the automaker’s manufacturing facility this week. However, they still want to see more before they become comfortable enough to rate the stock as a Buy or better.

Tesla Motors

Wedbush still Neutral on Tesla

Analysts Craig Irwin and Min Xu issued a report with their findings from the tour of the facility in Fremont, Calif. They remain Neutral on the company but have increased their price target from $150 a share to $180 per share. They said they are “increasingly convinced” that Tesla Motors Inc (NASDAQ:TSLA) will meet or exceed investor expectations “in both the near and intermediate future.”

Tesla’s production line could be improved even further

They said currently the automaker’s manufacturing line is producing vehicles “at an impressive rate,” and they believe that the company could even flex up production further over the 500 vehicles per week rate which the company is seeing as it exits the third quarter of the year. They believe that the part of the line where the trim and final assembly of the vehicle is done is “the limiting factor” for the company’s production capacity. The analysts suggest that Tesla Motors Inc (NASDAQ:TSLA) might be able to streamline that process to improve its production capacity even further.

The analysts also said every part of production for the Model S is “meticulously planned,” including the roadmap for 25 percent gross margins, which the company is aiming for by the end of this year. They say one example is how the company increased its gross margins from 5 percent in the first quarter to 13 percent in the second quarter. They note that the sequential jump in gross margins was brought about by the release of about 500 temporary workers who had been budged for under the ramp of the Model S.

Tesla’s suppliers appear to be playing a key role

The analysts also believe that Tesla Motors Inc (NASDAQ:TSLA)’s suppliers are providing it with price concessions which will contribute about 200 to 300 basis points to gross margins by the end of this year. They said that these concessions are likely due not only to the suppliers’ own cost-out execution but also their increasing expectations for Tesla’s future.

They also said Tesla management didn’t refute their checks which suggest that they had qualified Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) to supply battery sells. They believe improving battery costs due to better cell pricing plus tailwinds from currency could support upside for Tesla Motors Inc (NASDAQ:TSLA).

Tesla’s valuation based on 2017

The Wedbush analysts said their target is based on 30 times Tesla’s estimated 2017 earnings per share of $7.55, compared to their multiple of 25 previously. They discounted back four years using a 6 percent discount rate. They believe valuing Tesla on its 2017 estimates is the right thing to do because that is the first year its Generation III mass market vehicle is expected to scale. They also said a multiple of 30 seems fair because the company is still in “growth mode,” which leaves room for the company to keep penetrating markets and diversifying its vehicle line to push earnings higher and higher.

They see a number of big positives in the company’s path to reducing the cost of batteries over the long term and also the target costs for the Generation III vehicle. However, they say these positives are counterbalanced by remaining uncertainty in sales volumes. The analysts said before they take “a more constructive view” on Tesla Motors Inc (NASDAQ:TSLA), they want to have more confidence in the rate of the company’s market penetration behind early adopters.