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.
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
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
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%
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
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