Photo: Jakob Härter/Flickr
Piper Sandler has raised its price target on Tesla (NASDAQ: TLSA) from $515 to $1,200, which is the highest forecast on Wall Street. The firm realizes that Tesla stock is so valuable that investors should not sell it even after a 10x return over the past 12 months.
Piper Sandler's Sr. Research Analyst Alexander Potter, has published a 100+ page report entitled The Definitive Guide to Investing in Tesla. He wrote that 2020 was a breakout year for Tesla, but "the fireworks aren't over." The firm is convinced that investors should not sell shares even after a 10x return over the past 12 months. Potter wrote that despite the most comprehensive information he has published to date, even the expanded model of the firm does not capture all of Tesla's potential revenue streams.
"With Tesla's target industries still embracing outdated business models, it may be decades before this company runs out of new opportunities to pursue."
Piper Sandler highlighted three main points:
• Tesla is now part of the S&P500; investors who use this benchmark should be Overweight TSLA. Managing a growth portfolio was perhaps easier when Tesla was small enough to ignore. But now the stock can no longer be overlooked. Many investors fret that the company will torpedo their performance by influencing the benchmark in unpredictable ways--and the firm understands their trepidation--but Piper Sandler also believes that downside catalysts, should they materialize, will be met with eager buying.
• A new company outlook gives TSLA more credit for sustained success. The firm's forecast assumes delivery of 894,000 vehicles in 2021 and, ultimately, an increase to 9 million units in 2030. Potter notes that with this level of production, Tesla will be among the three largest automakers in the world. More importantly, the firm expects a steady increase in the adoption of full self-driving (FSD) software starting in 2030, and by the end of their forecast period, 50% + of all Tesla owners will be using the FSD package. This should have a big impact on margins, with EBIT margin eventually exceeding 40%. Finally, by the 2030s, Piper Sandler expects Tesla Energy to represent 20% -30% of revenue (vs. ~ 6% today). Taken together, these changes drive their DCF-based price target up to $1,200 from $515 previously.
• Tesla is targeting multi-trillion dollar markets; there will always be new levers for growth. The firm's model does not anticipate Tesla's potential entry into the HVAC or auto insurance markets, which generate hundreds of billions in market-wide revenues. Potter writes that their forecast for peak vehicle production (9 million units per year) is also well below Tesla's own ambitions based on the capacity plans outlined at Battery Day. In addition, the analyst acknowledges that they may be underestimating Tesla's revenue from solar power, Autobidder, and other opportunities in the energy segment.
© 2021, Eva Fox. All rights reserved.
We appreciate your readership! Please share your thoughts in the comment section below.
Legal Disclaimer --
This article is for informational purposes only. You should not construe any such information or other material as an investment, financial, or other advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, or offer by Eva Fox, Tesmanian, or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.
Eva Fox holds zero shares of Tesla, Inc., and currently (at the time of this article's publishing) holds zero options or securities in Tesla Inc. and/or its affiliates.
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.