Tesla Motors Inc NASDAQ:TSLA shares climbed as much as 5% in regular trading today after the company received a key upgrade from Deutsche Bank. Analysts there not only upgraded the automaker from Hold to Buy but also significantly raised their price target from $220 to $310 per share.
Tesla (TSLA) management improves analysts’ view
In a report dated Aug. 11, 2014, analysts Rod Lache and associates Patrick Nolan and Mike Levin said they think their previous expectations for Tesla may have been too low. They cite comments made by the automaker’s management as the reasons for their upgrade and price target increase.
They said Tesla Motors Inc NASDAQ:TSLA management’s second quarter earnings call offered several disclosures that some could see as “very significant” for both Tesla itself and the auto industry as a whole. They add that the company suggested that its growth trajectory will be a lot steeper, its mix a lot richer and its costs a lot lower than their previous estimates. As a result, they have made some big changes to their estimates for Tesla.
Tesla (TSLA) forecasts updated
The Deutsche Bank team made adjustments to their volume assumptions for 2015, 2016 and 2017. Their estimate for next year moves from 51,000 to 60,000, while their estimate for 2016 moves from 60,000 to 100,000. Their 2017 estimate increases from 83,000 to 129,000. The analysts believe even these increased estimates could end up being conservative because Tesla Motors expects to see a unit capacity of 50,000 by the end of this year and 100,000 units by the end of next year.
As a result, they think the path toward 500,000 units is “increasingly clear” by late this decade. They expect growth to continue well beyond that as well, as Tesla is looking for other opportunities to expand its production capacity even further.
Tesla (TSLA) may become more profitable than previously thought
The analysts said Tesla Motors Inc NASDAQ:TSLA management indicated that the product mix will probably be skewed more toward the more expensive models going forward. Specifically, they expect to sell more Model S sedans and Model X crossover vehicles compared to the Model 3 mass market vehicle than the Deutsche Bank team was previously estimating. Of course the result would be increased profitability.
In addition, Tesla Motors Inc NASDAQ:TSLA is targeting a cost of $150 per kWh by late 2017 for its battery packs. Currently, that number is closer to $250 per kWh. After talking with “industry experts,” the analysts say they think improvements of this much will probably require “significant advancements in cathode, anode and electrolyte technology.” However, they don’t think such advancements will be totally out of reach. In fact, they think that when Tesla does achieve these costs, the implications for the automaker and the rest of the auto industry will be huge. They note that with such low battery costs, Tesla Motors would have an “outright cost advantage” for its electric vehicles compared to traditional cars with internal combustion engines.
For this year, they now estimate that Tesla will post earnings of 75 cents per share. Their previous estimate was 91 cents per share. Their 2015 estimate moves from $2.65 to $3.37 per share, while their 2016 earnings estimate moves from $3.86 to $9.33 per share. By 2020, they believe Tesla Motors will be able to hit earnings of $27 a share.