Tesla (TSLA) stock had a very quiet day after a meaningful increase in Friday. Less than half the day’s average daily volume had changed hands as of 2:30 p.m. Eastern today as investors allowed the EV maker’s shares to slip 0.52% to $252.39 following a price target increase from analysts at Goldman Sachs.
TSLA stock price target to $245
Analyst Patrick Archambault upped his price target on Tesla stock from $202 to $245 per share but maintained his Neutral rating. He cited the strength in preorders for the Model 3, which Tesla Motors Inc (NASDAQ:TSLA) started accepting about a month ago. The automaker has already taken nearly 400,000 orders for the mass market electric car, which is much better than most were expecting at this stage of the process.
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The Goldman analyst examined the car’s competitive position against similar cars by other brands and said it is a very favorable comparison although some have said that drivers are just entranced by the relatively new Silicon Valley automaker. Second, he has bumped up his estimates for the Model 3 while trimming his Model S and Model X estimates. And third, he said he revisited his “analysis of various fuel types including EVs under the current low gas price environment.”
His conclusion is that although it currently will take the average consumer nine and a half years to see their investment pay off, the amount of payback time should be reduced quickly on the back of falling battery costs and “fleet-driven mobility.”
Tesla now faces execution risks
Archambault sees more room for upside at some point in the future, although he believes Tesla stock is currently fairly valued. His base case assumes that Tesla sells 286,000 units per year by 2020, which is only a little more than half of Tesla Motors Inc (NASDAQ:TSLA)’s target of 500,000 units by then. As a result, he has increased his assigned probability of success for Tesla Motors Inc (NASDAQ:TSLA) to be disruptive instead of just successful from 25% to 35% and noted that execution is a key risk for the automaker. In building his framework for what tech disruption looks like, he looked at Apple with the iPhone, Ford with the Model T and other consumer durables like appliances.
Other risks the analyst named are sustained orders for the Tesla Motors Inc (NASDAQ:TSLA)’s Model X and free cash flow burn.