Tesla (TSLA - Free Report) stock surged after a new analyst upgrade on Wednesday, despite the electric car company’s recent failure to meet production goals for its Model 3 sedan.
In a note to clients, Nomura Instinet analyst Romit Shah initiated Tesla coverage with a “Buy” rating. On top of that, the analyst set a $500 per share 12-month price target, which would represent a 44% jump from Tesla’s Tuesday close.
The Nomura analyst also proclaimed that Tesla could be poised to dominate the electric car industry in a manner akin to Intel’s (INTC - Free Report) PC run in the 1990s.
"Tesla is vertically integrated, owning both the manufacturing and much of the supply chain, similar to Intel when it scaled revenues from $4bn to $34bn during the 1990s' PC era," Shah wrote in a note to clients. "We believe that Tesla has an insurmountable lead in vehicle range per dollar; benefits from what we believe is a largely inferior competitive field, which should help sustain current growth."
Shah also said that Tesla's Gigafactory allows Elon Musk’s company to manufacture batteries more efficiently than its competitors. Tesla’s less-expensive Model 3 costs $140 per mile of range, which tops other electric carmakers’ $236 per mile of range, according to Shah (also read: So, What Actually Is Tesla's Gigafactory?).
Based on these advantages, Shah expects that Tesla’s revenues will climb to $58 billion in 2021, up from $7.75 billion in 2016. The analyst projects this sales growth will be spurred by a jump in total vehicle sales, from an estimated 112,000 this year to 877,000 by 2021.
This eye-popping projection helped send Tesla stock up almost 3% to hit $358.62 per share on Wednesday morning.
Yet investors don’t seem to care that the company isn’t coming close to meeting its own production expectations at the moment.
Tesla recently reported that it built just 260 Model 3 sedans between July and September. The electric car giant announced as recently as August that it would produce 1,500 of its newest vehicles during that time frame.
This might make some investors ask: how could Tesla be so wrong? Or maybe worse yet, what is causing the delays?
However, the basic thought of many investors is that Tesla’s current fundamentals don’t matter. Investors view Musk and his company as a long-term, game-changing play. Furthermore, at least one analyst has noted that failing to meet production goals is much better than rushing out new EVs that are not up to snuff.
“It’s the lesser of two evils,” senior Consumer Edge Research analyst Jamie Albertine told Bloomberg recently. “Do you risk investor sentiment and hurt the stock price today or disappoint customers with a recall tomorrow? A recall on the Model 3 could be catastrophic.”
Tesla is currently a Zacks Rank # 3 (Hold) and scored and “F” for both Value and Growth in our Style Score system and it is set to see its EPS figures plummet 128.53% this year, based on our current consensus estimates. This does not seem to matter for many investors, as Tesla hasn’t been treated like a regular car company, really ever.
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