New Street Research is no stranger to most Tesla(NASDAQ: TSLA) long term investors. On October 7th, the firm upgraded Tesla Inc (NASDAQ: TSLA), the California EV maker to a buy rating witha new price target of $578, up from $400. New Street Research analyst, Pierre Ferragu, sees Tesla Inc (NASDAQ: TSLA) with "a decade of hyper-growth ahead" and"no credible competition on the horizon."
Tesla addresses today the entire premium segment, with high-end and mid-end sedan and SUV models. This is globally an 8M unit market. In addition, Model 3 has clearly demonstrated drivers "trade-up" to the Tesla brand, with 2/3 of buyers trading in non-premium cars, which represents an additional 12M addressable market. Lastly, the Cybertruck addresses a 3M unit global market.
It costs traditional OEMs $18K to electrify a car, which results in lost profits and electric models selling at an average $16K premium to ICE equivalents. By contrast, Tesla's cars sell for less than equivalent premium ICE competition. Traditional OEMs therefore cannot compete as long as they do not get to cost parity, and they are still at least 5 years away. EV pure plays are flourishing and doing better, but won't have any competitive advantage to beat Tesla. At best they will follow suit the leading brand in its success, with less scale and less experience.
Only the ramp of production capacity limits Tesla's growth in at least the next 5 years, and we expect virtually no pressure on prices, leading to expanding margins. This means Tesla, as it stands today, will become the largest and most profitable premium car manufacturer in 2026.
Before 2025, tesla's addressable market will have quadrupled in volume, with lower-price cars. The energy storage opportunity will have matured, representing a $750BN addressable market. This means tesla will be even larger and still in hyper-growth mode.
Amazon has traded in the 50-100x earning range for over a decade, and we expect Tesla to follow suit. With the existing car opportunity only, we model $16 EPS in 2026, justifying a $1,200 stock price at the end of 2025. We are buyers of the stock in the next 12 months below $578, i.e. 84x our 2022 EPS forecast. At this price, the stock would still deliver 20% p.a. return until 2025.
We see strong catalysts for the stock, as expectations for next year are at least 20% too low.
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