Baird analysts believe Tesla Motors Inc (NASDAQ:TSLA) will keep surprising and that its stock will keep rising. Analyst Ben Kallo issued a report to investors this week raising the firm’s price target for the stock from $118 to $187 per share in the wake of the company’s last earnings report.
Tesla Motors Inc (NASDAQ:TSLA’s execution continues
Kallo said they look at Tesla not just as an automaker, but also as “a trend-setting consumer brand and a leader in technology that dozens of other companies both larger and smaller have failed at perfecting.” He said the company continues to execute well, reporting strong deliveries, improving gross margins and better than expected demand.
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He noted that Tesla Motors Inc (NASDAQ:TSLA)’s latest earnings report beat in both GAAP and non-GAAP models. Sales and margins were both better than expected. Non-GAAP earnings per share were 5 cents, compared to estimates of 19 to 26 cents in losses, depending on who you asked. He believes the automaker’s future financial results will be easier to predict because the change to its financing model has been completed and it will now report on a non-GAAP basis, which does not include impacts from financing.
Tesla Motors Inc (NASDAQ:TSLA) could beat guidance
Tesla’s management kept its 21,000 unit target for deliveries this year but is projecting demand to hit 40,000 by the end of next year. The automaker produced about 5,500 Model S sedans and delivered 5,150 of them in the second quarter. Kallo believes Tesla Motors Inc (NASDAQ:TSLA) will beat its own estimate for this year.
He also notes that the company has made some important progress toward its goal of a 25 percent margin without the positive impact of regulatory credits. He said that margin is within sight, “which should eliminate the most pervasive Bear argument.” However, analysts from other firms are having no problems coming up with other bearish arguments.
Positives for Tesla Motors Inc (NASDAQ:TSLA)
The Baird analyst provided several positives that he sees in Tesla Motors Inc (NASDAQ:TSLA). Among those positives is the platform design used by the company, which offers a capital-efficient way to introduce future models of vehicles. It also enables the automaker to expand its vehicle line quickly and could cut development time for the Model X in half with a third of the capital expenditures of the Model S.
He also believes Tesla’s Generation III vehicle will outperform competitors. He expects the model to begin with an average selling price of $35,000, although he expects the company to offer higher priced models with a range of more than 200 miles. He also believes that the vehicle will outperform the Audi A4 and BMW 3 Series, which it will compete with when it arrives on the market. As such, he sees the Generation III vehicle as an important tool in Tesla’s drive to take market share.
Tesla Motors Inc (NASDAQ:TSLA’s big partners
The analyst noted a number of solid partnerships and strategic investors which will continue to validate Tesla Motors Inc (NASDAQ:TSLA)’s technology. Among them he lists Daimler, Panasonic and Toyota Motor Corporation (NYSE:TM) (TYO:7203). He said Daimler invested $76 million in Tesla through Blackstar, and Tesla has signed an agreement to provide powertrains for a new Mercedes electric vehicle that’s expected to be released next year.
Also Panasonic has invested $30 million in Tesla and is supplying it with automotive grade lithium ion battery cells. In addition, Toyota invested $50 million and sold its plant to Tesla at a significant discount. Tesla Motors Inc (NASDAQ:TSLA) is also set to provide a powertrain for the new Rav4 EV model as part of a $100 million contract.
Risks for Tesla Motors Inc (NASDAQ:TSLA
Of course there are always risks with any investment, and he does note four of them for Tesla. He said one problem is that the automaker depends on single sources for many of its key automotive parts. It could face a negative impact if its supply chain were to be interrupted in some way.
He also said slowing adoption of electric vehicles could post a risk, as well as limited advances in battery technology. And finally, he said automobile demand could be reduced by the economic environment, which would create a risk for all automakers, including Tesla Motors Inc (NASDAQ:TSLA).