Tesla Motors still faces an uphill battle, even more so since management moved up their target for producing 500,000 cars per year by two years to 2018, but it’s one the company can win, believe analysts at Sterne Agee CRT. They initiated coverage of Tesla stock with a Buy rating and $300 per share price target, which puts them higher than the consensus price target of $267.53.
They particularly like the company’s technology, which there was an implied update on this week at the International Transport Forum in Germany.
Tesla a Buy for tech
In a report dated June 2, analysts Rob Cihra and Edison Yu called Tesla “controversial, expensive and risky” but quantified those qualities as “the price for nearly open-ended growth in a technology innovator targeting trillion dollar auto and energy markets.” They see the automaker as potentially being able to disrupt multiple markets, including electrification, autonomous driving and “on-demand transport.”
They noted that justifying Tesla’s valuation is extremely difficult because it still has a lot to prove and must build a lot of infrastructure to build in the process. The automaker must prove it can meet its even more ambitious targets in producing 500,000 cars per year by 2018, and not only that but it must also demonstrate that electric vehicles are more than just a small niche. Additionally, it must prove that it can stand up to long-lived incumbents like General Motors and Ford.
However, they like Tesla because it is taking on massive markets that are ripe for disruption, even though they don’t think it will be able to hit that 500,000-car per-year mark until at least 2019. They also don’t expect the automaker to become free cash flow positive until at least 2019, although they note that adding cash back in from leasing makes the core free cash flow look a little better this year.
Better battery tech on the way at Tesla?
Tesla has long been praised for its technology, and Chief Technology Officer and Co-Founder JB Straubel reportedly made some comments this week that suggest they’re on the cusp of yet another breakthrough. In his keynote speech at the International Transport Forum in Germany this week, he said they’re already seeing improvements in battery performance, according to Hybrid Cars.
There’s been debate about just how well batteries can power cars, and Tesla has been a trailblazer in the area of range as its cars can go hundreds of miles on a single charge. Straubel reportedly said that the improvements they’re seeing involve getting “more energy in the same volume of materials” and better research in energy storage, such as chemistry research and “material science to make better batteries, and improve materials and reduce the cost.”
Indeed, the battery is arguably the most important part of an electric vehicle, and one concern some analysts have is whether Tesla can get costs low enough to be able to price the Model 3 at the $35,000 base price the automaker has promised.
Tesla shares edged lower by as much as 0.12% to $218.68 during regular trading hours on Friday.