Tesla stock up on price target increase for China demand
Demand for Tesla‘s vehicles in China has been a key part of the story for its stock. Now one analyst has increased his price target, saying he believes Tesla’s production and demand trajectory in China” is “robust and stronger than expected” for the third quarter.
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Tesla stock price target to $475 for China demand
Wedbush analyst Daniel Ives raised his price target for Tesla stock from $380 to $475 and reiterated his Neutral rating. The shares climbed more than 4% in early trading this morning after his price target increase.
Notes from Laird Bieger of Baron Capital, Mark Wynegar of Tributary Capital Management, and Amy Zhang of Alger Funds’ presentation from the 2020 Monringstar Investment Conference. Q2 2020 hedge fund letters, conferences and more Up-and-Coming Small- and Mid-cap Portfolio Managers Our manager research team has been publishing its semiannual Morningstar Prospects report for several years. Read More
In his report, Ives said Tesla has had strong delivery numbers in China due to pent-up demand for the China-built Model 3 and recent price cuts. He said the automaker has increased its market share compared to domestic competitors as Gigafactory 3 in Shanghai has growth.
He also believes that Tesla’s margins on Model 3s sold in China compared to those sold in the U.S. and Europe are higher, which could significantly increase the company’s profitability profile in the coming years. He expects China to make up more than 40% of Tesla’s global sales, possibly by early 2022.
For that reason, he raised his base case price target for Tesla stock and maintained his bull case target of $700.
Tesla demand in China remains strong
The latest data from China actually comes from Hong Kong rather than the mainland, but it shows that Tesla is the most popular car brand in the city, including vehicles with internal combustion engines. The data comes from the Hong Kong Transport Department, and Tesla announced it on its Weibo page.
The company said 912 Tesla vehicles were registered in Hong Kong in August. According to Teslarati, The Model 3 is now the most sought-after vehicle in Hong Kong a year after deliveries started in the city. Giga Shanghai has been delivering Tesla vehicles to Chinese consumers since January.
Tesla is now working on Phase 2 of Giga Shanghai, which is set to start producing the Model Y late this year or early next year.
Looking forward to the battery day
Ives also wrote about Tesla’s upcoming battery day in his report this week. He describes the Sept. 22 event as a “lynchpin event.” He expects the company to announce a number of “game changing” developments for its batteries at the event.
He noted that batteries have become more and more important for electric vehicles as competition in the space ramps up. He believes the innovations around the Gigafactory and the Fremont facility remain “the key ingredients in Tesla’s success on the battery front.” He also believes the automaker is close to announcing the million-mile battery at the event.
He believes the battery could last for decades and be able to withstand all types of weather and terrain. It would also be a major milestone for the company and a big step toward competing with traditional gasoline-powered vehicles.
Another aspect of the battery day could be reducing the cost of producing batteries, moving toward the key $100 per kWh target.
New delivery numbers drive Tesla stock price target
Ives updated his delivery estimates as well. For the third quarter, he increased his delivery estimate to 130,000 vehicles, including 117,000 Model 3s and Model Ys and 11,000 Model S and Model X vehicles. His previous estimate was 123,000, including 112,000 Model 3s and Model Ys and 11,000 Model S and Model X vehicles.
The increases for the third quarter bring his total for 2020 to 470,000 vehicles, compared to his previous estimate of 457,000. He expects the Model 3 and Model Y to make up about 90% of the total units. He also boosted his fiscal 2021 delivery number to 680,000, representing a 45% year-over-year increase. He looks for 622,000 Model 3 and Model Y vehicles next year and 59,000 Model S and Model X vehicles.