Tesla gets a price target boost to $400 from $375 per share from Deutsche Bank as it sees plenty of growth catalysts in 2023.
In a note published Friday, Deutsche Bank analyst Emmanuel Rosner said he believes Tesla's stock rally is just beginning. He sees several likely growth drivers for the company in 2023. These include entering new segments with the Cybertruck and Semi, benefiting from the Inflation Reduction Act (IRA), growing gross margins, and others.
“We view 2023 as a pivotal year in which Tesla continues to grow volume at a high pace, enters new segments with Cybertruck and Semi, optimizes its manufacturing footprint, and benefits from IRA which will lower its costs and boost demand,” Rosner wrote (via Yahoo!Finance). “We see considerable room for upward revision to 2023 Street estimates from these factors, with upside potential to gross margin from full self-driving, with every 5% improvement in global take rate on new sales boosting gross margin by another 80 basis points, which is not in our base case scenario.”
The analyst expects lower manufacturing costs to be a key profit driver for Tesla going forward and, despite a slowdown in its growth in the first half of the year, its increase will begin later in 2022. According to Rosner, next year Tesla will be able to increase gross margin by another 300 basis points on a year-over-year basis.
“While the company's gross margin improvement has slowed down this year, due to costs and inefficiencies from Covid-related lockdowns and ramping up new factories, we believe Tesla is still on track to grow this metric in 2022,” the analyst wrote. “More importantly, looking ahead to next year, we now forecast Tesla could raise gross margin by another 300 basis points year over year, thanks to positive mix shift towards lower cost of goods sold-production facilities and benefit from IRA's [Inflation Reduction Act] battery production credits in the U.S.”
“Starting from base cost of goods sold/ vehicle of $36k in 2021 (before impact of rising raw materials and inflationary costs which the company is largely offsetting through product price increases), we estimate Tesla could generate $2,400/vehicle (or 6.5%) average cost reduction from expanding its manufacturing footprint to lower cost of goods sold regions and facilities, and another ~$800/vehicle in US battery production credits in Fremont and Texas, averaged out on a global basis,” added Rosner.
The analyst wrote that “combined potential cost reduction of $3,200/ vehicle could represent a benefit worth 5.5% of average selling price, but we conservatively only boost 2023 gross margins by 200 basis points to 31.5% from 29.5%, representing a 300 basis point improvement from 2022 levels, and increase adjusted EPS from $6.60 to $7.15, significantly above consensus of $5.82.”
In addition, Rosner highlighted the potential growth in demand for Tesla Cybertruck and Semi vehicles, which are expected to hit the market in 2023.
“Longer term, we see more room to improve on gross margin and even higher potential on operating margins as volume ramps up," the analyst wrote. "We continue to view Tesla as one of the most attractive stories in the autos sector thanks to its pricing power, superior cost structure, strong execution, and having secured supply and now establishing more meaningful capacity to support considerable growth.”
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