Source: PaxForex Premium Analytics Portal, Fundamental Insight
Tesla shares have surged almost 40% year-to-date, outperforming the S&P 500's 8% rise, which has likely pleased investors. However, one analyst believes the stock still has significant potential for growth. According to Piper Sandler analyst Alex Potter, the stock's 12-month price target is $280, indicating a more than 60% increase from current levels.
This bullish stance on the growth stock is in contrast to many analysts who have recently lowered their price targets due to the company's narrower profit margin resulting from aggressive price reductions on Tesla vehicles this year.
So, what factors are driving Potter's optimistic outlook on the stock? Let's delve into them.
Initially, Potter was among several Tesla analysts who downgraded their 12-month price target for the electric car manufacturer after its report, despite his initial reluctance to do so. Prior to reducing his target to $280 last week, he had set a target of $300 for the stock. The revised projection reflects Potter's lower estimates for the company's financials between 2023 and 2025, as Tesla faces short-term challenges arising from lower prices and demand uncertainties in a volatile macroeconomic climate.
Despite this, a price target of $280 is still an optimistic forecast. According to recent communications with investors, Potter's bullish perspective stems from Tesla's robust free cash flow, which enables the company to self-fund its operations, and his anticipation for profit margins to improve in the future due to the sale of high-margin software. Tesla's driver-assist software packages, such as Enhanced Autopilot for $6,000, and the more advanced driver-assist technology that the company expects will eventually facilitate self-driving, costing $15,000, are notably expensive. For those who are unwilling to pay the upfront cost of these features, Tesla offers a subscription model.
Potter's optimistic outlook aligns with the views of Tesla's CEO, Elon Musk. During Tesla's Q1 2023 earnings call, Musk expressed confidence that the company would achieve full self-driving capability by the end of this year, which he believes will result in significant profits.
Musk stated, "We're the only ones making cars that -- technically -- we could sell for zero profit for now and then yield actually tremendous economics in the future through autonomy," during the conference call.
Musk envisions a future where full self-driving vehicles not only offer convenience to their owners but also generate revenue as they participate in an autonomous taxi network. While this is an exciting prospect, there is no guarantee that Tesla will achieve this goal in the near future.
It's worth noting that even Potter may not anticipate Tesla achieving full self-driving capability this year. Musk has a track record of overpromising and underdelivering when it comes to autonomous driving features.
The potential monetization of self-driving production vehicles is a new frontier, and even predicting that driver-assist software will significantly boost profitability is speculative. There are numerous risks associated with the optimistic scenario that software will result in a much higher profit per vehicle in the future. That being said, if Tesla can successfully implement its self-driving and vehicle software vision as management intends, there is a strong possibility that Tesla's shares will soar.
As long as the price is above 151.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 167.70
- Take Profit 1: 198.00
- Take Profit 2: 217.00
Alternative scenario:
If the level of 151.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 151.00
- Take Profit 1: 138.00
- Take Profit 2: 122.00
