Elon Musk‘s Tesla Motors evokes strong feelings from both supporters and critics. Teslovers support the ambitious thinking and risk taking, and critics point to the sky-high valuation, grandiose plans and limited sales to date. Goldman Sachs Equity Research recently waded into the fray, publishing a Company Update on Tesla Motors suggesting that the current dip in Tesla’s share price is a good opportunity to pick up a few shares.

Tesla Motors

GS analyst Patrick Archambault and colleagues explain their bullish perspective on the electric vehicle manufacturer: “While valuation still holds us back from having an outright Buy (currently rated Neutral), post the share price decline we now see absolute upside to our $214, 6-month price target – which embeds a 20% cost of capital – which means investors are increasingly getting paid to navigate these short-term risks.”

Two new factors to consider in evaluating Tesla

Tesla Motors

Archambault et al. argue that relatively few investors or analysts realize that other EVs are simply not going to be able to beat “the cost/range combination of the Model S and ultimately the Model X and Model 3, given industry leading battery costs that likely persist past the end of the decade.” The GS analysts also note that while foreign exchange costs could cause short-term estimate revisions, they expect that Tesla will become increasingly operationally hedged in terms of foreign exchange as it expands internationally.

Pulling it all together, they see no reason to make significant changes to their long-term 2020-2025 projections, when “Tesla’s disruptive potential is likely to come to fruition, and where the bulk of Tesla’s value is captured.”

Tesla Motors

Valuation and risks

The Goldman Sachs team currently rates Tesla as Neutral, but has a $214 price target on the EV maker, well above its Wednesday closing price of $187. This 6-month price target is calculated using five probability weighted automotive scenarios (plus stationary storage optionality), and suggests a 12% upside potential, including a 20% cost of capital.

Key risks to Tesla include demand for its vehicles in both the the U.S. and Europe, the costs and construction of its battery Gigafactory, Model X/Model 3 launch execution, China orders/deliveries and higher than projected capital expenses.