Despite a challenging second quarter thanks to Giga Shanghai’s shutdown and pressure on TSLA stock partly due to CEO Elon Musk’s efforts to acquire Twitter, Tesla has received an optimistic outlook from UBS analyst Patrick Hummel nonetheless.
In recent comments, Hummel opted to upgrade Tesla from “Neutral” to “Buy” with a price target of $1,100 per share. Such an estimate suggests a 50% upside for the electric vehicle company’s stock, which has been at the $700 level as of late.
Hummel noted that Tesla is down ~35% year to date, but that is pretty much in line with other tech stocks. The analyst believes, however, that Tesla’s operational outlook is actually formidable.
“We upgrade TSLA to Buy (from Neutral) with an unchanged $1,100 PT. TSLA is down ~35% ytd in line with other tech stocks, but we believe the operational outlook is stronger than ever before thanks to:
“(1) record-high order backlog and two new gigafactories ramping up; (2) margin momentum: after the Q2 dip, auto gross margin should structurally exceed 30%, driven by pricing and product & process innovation; (3) a structural competitive edge in key supply chains, resulting in superior growth and profitability.
“While we cut 2022E EPS by -12% to account for the Shanghai lockdown (still reaching ~50% growth in deliveries y/y though,) we raise ES for he next 3 years by up to 40% resulting in $28 EPS (diluted) 2025E, to be achieved mostly with already known products & production facilities,” Hummel noted.
Hummel also stated that Tesla’s vertical integration in semiconductors, software, and battery systems could result in superior growth and profitability for the company.
“Tesla can outgrow peers with a combination of in-house cell capacity, its lead vs. global competitors in using LFP cells and its high share of directly sourced battery commodities, lithium above all,” the analyst said.
Disclaimer: I am long TSLA.
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