Tesla Motors Inc (NASDAQ:TSLA) stock has received yet another upgrade amid rising enthusiasm around its gigafactory plans. JPMorgan auto analysts Ryan Brinkman and Samik Chatterjee said in a research note that the gigafactory plans have instilled a greater confidence in the cost curve. The research firm has increased its price target on the stock from $137 to $164. However, JPMorgan analysts maintained their Neutral rating on Tesla. Last week, Morgan Stanley more than doubled its price target from $153 to $320.
JPMorgan increases EPS and volume estimate for Tesla
JPMorgan analysts said that the delay in the release of Model X will have little impact because the Model S launch was smoother than expected. Tesla Motors Inc (NASDAQ:TSLA) is currently looking for a 500-1000 acres site for the plan, and has raised $2 billion on highly amenable terms to finance the construction. The move has given analysts more confidence about reducing battery costs and launching the cost-competitive Gen III model.
JPMorgan has subsequently raised its volume estimates from 228K to 288K by 2020. Brinkman and Chatterjee also increased their EPS estimate to $15.43 by 2020, compared to the previous estimate of $14.68. They believe that the higher sales volume would be partially offset by increased operating expenses and higher costs of financing. The research firm expects Tesla Motors Inc (NASDAQ:TSLA)’s capital expenditure to total $3.8 billion between 2015-2020. That will be enough to cover the gigafactory expenses, tooling for the Gen III and a possible factory in China.
Tesla may face execution risks
While Tesla Motors Inc (NASDAQ:TSLA) has made significant progress, JPMorgan remains concerned about the execution risk. The Gen III vehicle would require greater execution than the Model S and Model X. While the company may be successful in reducing the battery costs sufficiently and launching the mass market vehicle, but JPMorgan believes that the current stock price has priced in much higher volumes than it estimates and little likelihood of uneven executions. That is, investors have grown far too optimistic about the stock, and they don’t think there could be any execution risk going forward.
JPMorgan’s $164 price target is based on the DCF and multiples analysts, assuming 288K unit production by 2020. While the DCF model indicates the stock price at $183, the 2020 multiples-based analysis yields a share price of $144. The average of two methods gives a $164 price target.
Tesla Motors Inc (NASDAQ:TSLA) shares skidded 3.96% to $235.12 in pre-market trading Monday.
