Piper Sandler Increases Tesla TSLA PT to $1,350 from $1,300

von Eva Fox Februar 14, 2022

Piper Sandler Increases Tesla TSLA PT to $1,350 from $1,300

Photo: u/p1ngz/Reddit

Piper Sandler has updated its model to reflect information derived based on 10-K disclosure, as well as an updated forecast for deliveries, capex, and margins. With these changes, the firm increased Tesla's price target to $1,350 from $1,300.

Piper Sandler focuses on five key topics: 1) deliveries; 2) gross margin; 3) opex; 4) software; 5) cash flow and describes these in the note below. The firm also emphasizes that Tesla is their #1 pick.

DELIVERY:
1) We forecast 1.58M deliveries in 2022; this implies 69% growth vs. 2021
2) For reference, Tesla aims for at least 50% y/y unit growth for the foreseeable future
3) Model Y is the biggest near-term growth driver, while chip supply is the limiting factor
4) Our model contains a delivery forecast for each product by region (see pages 2-3)
5) We still expect deliveries to peak at 11.8M/year in 2030

GROSS MARGIN:
1) Gross margin was a success story in 2021, but we struggle to predict in 2022
2) We think automotive gross margin (excl. credits) will fall to 25.8% in 2022 (-120bps y/y)
3) The y/y decline is to reflect the dilutive impact of new factories
4) Lower regulatory credits should drive Tesla-wide gross margin to 24.3% (-100bps y/y)
5) We expect higher margins in Energy & Service, but this is a low conviction forecast

OPERATING EXPENSES:
1) Elon Musk's stock-based comp was $900M+ in 2021 (SG&A); this will not recur in 2022
2) The absence of this expense represents a 100bps tailwind for 2022 operating margin
3) R&D and SG&A were flat in 2017-2020, but ramped up in 2021, due to global expansion
4) We expect SG&A+R&D to rise by ~$18 y/y, but operating margin should still exceed 16%

SOFTWARE:
1) On the Q4 call, Tesla was bullish re: prospects for full self-driving (FSD) software in 2022
2) ...but based on the 10-K, expectations for FSD revenue recognition may have slipped
3) Some deferred revenue was reclassified into long-term liabilities (implying FSD delay?)
4) But still: software is a major part of our thesis; we don't mind waiting a bit longer for FSD

CAPEX & CASH FLOW:
1) Tesla's cash conversion cycle (-13 days) and ROIC (mid/high-teens) continue to impress
2) The 10-K guided capex to $58-$7B/year through 2024, implying continued efficiency
3) Our WACC is rising to 11.5% (vs. 11.2% previously) to reflect rising treasury yields
4) Despite this, we are boosting our PT to reflect an improved outlook re: capex, FCF

© 2022, Eva Fox | Tesmanian. All rights reserved.

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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.








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