Goldman Sachs upgrades Tesla (NASDAQ: TSLA) to Buy from Neutral and raises their 12-month target price to $780 from $455, given the move to EV adoption is faster than previously thought, and Tesla will maintain its lead in the market.
Goldman Sachs analysts wrote in their note that they believe the transition to electric vehicle adoption is constantly accelerating and happening faster than they previously thought. Battery prices are also falling faster than previously anticipated, making it more attractive to own an electric vehicle. As a result, the firm raised its forecast for electric vehicle adoption, and now expects electric vehicles to account for 18% of global sales in 2030 and 29% in 2035.
"We believe that the shift toward battery electric vehicle (EV) adoption is accelerating and will occur faster than our prior view. We believe that battery prices are falling faster than we previously expected which improves the economics of EV ownership, and there has recently been an increase in regulatory proposals from some jurisdictions to limit or ban the sale of new internal combustion engine (ICE) vehicles entirely in 10-20 years. As a result, in conjunction with our global colleagues, we are raising our outlook for EV adoption and now expect EVs to comprise 18% of sales globally in 2030 and 29% in 2035 (with 50% adoption in 2035 in both the US and in Western Europe)."
Meanwhile, Goldman Sachs noted that the dynamics of EV development is leading to a higher likelihood of their future EV scenario, which sees global EV adoption by 26% in 2030 and 40% in 2035.
"We also believe that the momentum behind EVs from both an economic and regulatory perspective is leading to a higher probability of our upside-case EV adoption scenario that calls for 26% global EV adoption in 2030 and 40% in 2035 (with 66% in the USA and 60% in Western Europe)."
The firm said it expects Tesla to maintain its leading position in the electric vehicle market thanks to its combination of proprietary hardware, software, the company's approach to overlap between its own products, and the fact that the company offers consumers a complete ecosystem of products: solar panels, energy storage systems, and access to a fast-charging network.
"Importantly, we expect that Tesla's integrated model (including its coupling of custom hardware and software, platform approach with significant parts overlap between key products like the Model 3 and Y, and its ability to offer a full ecosystem of products for consumers including solar, storage, and convenient access to fast charging) will help it to sustain a leadership position in the EV market."
Goldman Sachs concluded that, if Tesla can maintain its share of the electric vehicle market, then by 2040, the company could reach 15-20 million units. If the industry continues to move to electric vehicles faster than the firm expects, Tesla is likely to reach that amount even earlier.
"If Tesla sustains its mid to high 20% range share of the EV market, then it could reach 15 mn units by 2040 (and about 20 mn under our upside-case EV market adoption scenario). To the extent that the industry continues to shift toward EVs more quickly than we anticipate, or if Tesla is able to take a share in the market, then we believe that there is a possibility Tesla reaches these types of volumes more quickly. Our DCF valuation assumes about 15 mn units in 2040 when we have Tesla entering perpetuity growth of 2.5%."
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About the Author
Eva Fox joined Tesmanian in 2019 to cover breaking news as an automotive journalist. The main topics that she covers are clean energy and electric vehicles. As a journalist, Eva is specialized in Tesla and topics related to the work and development of the company.