Tesla upgraded to Buy with new price target of $1,071
Free Book Preview Money-Smart Solopreneur
Tesla Inc (NASDAQ:TSLA) has received an upgrade and price target increase for its exposure to the energy storage business. Canaccord Genuity analyst Jed Dorsheimer upgraded the stock to Buy and raised his price target to $1,071.
The new price target is based on 62 times the firm's 2024 EV/ EBITDA multiple, which is three times those of its competitors. Although Tesla's valuation is rich, Dorsheimer believes it has a lead of several years and noted that it is now expanding "aggressively" into energy storage.
He believes the automaker's focus on "first-principle engineering" will dramatically change the battery market. Dorsheimer also believes it will enable Tesla to increase its lead in battery electric vehicles and expand into the solar and home energy market with its Powerwall line of storage products.
The analyst expects the constraints of battery supply to start abating in 2022 as the automaker's new 4860 cell production starts at Giga Nevada and in Texas and Berlin. Tesla will also start partnering with Panasonic and LG for battery production.
When the automaker has enough batteries, it will be able to meet its "new aggressive Powerwall campaign" and bring its Powerpack and Megapack to full scale, often pairing them with solar installations. Dorsheimer expects accelerated growth in Tesla's energy storage and generation business. He conservatively estimates $8 billion in revenue in 2025 with gross margins at parity or higher than its EV business at more than 25%.
Transition To Mass-Market Electric Vehicles
He also pointed out that the Model 3 and Model Y made up 99% of Tesla's record first-quarter deliveries, which demonstrates a successful transition into the mass market. Dorsheimer expects auto gross margins to continue climbing to more than 25% as volumes of the Model 3 and Model Y rise from Giga Shanghai. Tesla is also expected to release entry-level models using LFP batteries, and he expects tailwinds from credit sales in China.
Dorsheimer believes that the automaker's successful transition into the mass market and sizable investments in battery manufacturing and production capacity will enable it to "conquer another trillion-dollar market in energy generation and storage." He added that Tesla is "rapidly creating an Apple-esque ecosystem of energy products, harmonized in electrification, to become The Brand in energy storage.
The automaker has already set out its path toward 3 TWh of yearly production by 2030, which is much larger than the 240 GWh Volkswagen announced at its recent Power Day. Tesla is taking advantage of all its available resources to meet battery demand, including through its in-house production and supply agreements with LG. Additionally, the automaker will switch to LFP cells for its vehicles made in China.
Tesla is part of the Entrepreneur Index, which tracks 60 of the largest publicly traded companies managed by their founders or their founders' families. The company's stock climbed by more than 3% in early trading this morning.