Tesla (NASDAQ: TSLA) is poised for a possible 71% spike in stock price, according to a new note from Wedbush Securities analyst Dan Ives, who increased his bull case for the electric automaker’s stock to $3,500 from $2,500.
Ives, who handles TSLA’s evaluation for Wedbush, bases his new increased bull case on the company’s upside in China, which he believes is the key to the stock price soaring higher.
“We believe the production and demand trajectory in China for Tesla remains robust and stronger than expected for 3Q with clear momentum heading into year-end,” Ives said in a note to investors on Sunday, August 23.
Wedbush and Ives’ previous bull case for TSLA stock was $2,500. However, the company’s overwhelming potential in China is cause for a revised bull case, which increased by $1,000.
“The pent-up demand in the China EV market for Model 3’s and recent price cuts are creating a ‘perfect storm of demand’ for Musk & Co. in this key market with increased market share vs. domestic competitors as the Giga 3 success story continues to play out,” Ives added according to Seeking Alpha.
The firm’s current base price target for TSLA stock is $1,900. The revision in the bull case is purely based off of the growth that Tesla has experienced in China since it started delivering the Model 3 in January.
Ives also indicated that Tesla’s success in China in the coming years could be worth more than Wedbush planned initially.
“With the China growth story, Tesla could now have $35+ of earnings power by 2025/2026 vs. our prior estimate of $20-$25,” Ives also said in the note.
Wedbush believes that the Tesla Model 3 will experience higher margins than the same vehicle in the U.S. and European markets. This could “markedly increase the profitability profile” for Tesla as the company begins to expand to more markets with the construction of its first European Gigafactory. The company is also moving quickly on the development of its second U.S.-based facility.
By 2022, Tesla could have around 40% of its sales attributed to the Chinese market, Wedbush said. This depends on whether the company can keep up with the increasing demand for its vehicles in the country, which is the largest automotive market in the world.
Along with the developments in China, Tesla’s September 22 Battery Day event could also surge the stock even further. Battery Day will outline Tesla’s cell manufacturing strategy, and rumors have circulated that the company will also unveil a million-mile battery that is capable of an extended lifespan thanks to increased longevity. Tesla has been developing its cells with the help of Jeff Dahn and his team of battery researchers in Canada.
Tesla has rallied more than 390% so far in 2020. With increasing demand in China and rumored battery breakthroughs, there seems to be no stopping the momentum that the electric automaker holds currently.
Disclosure: I have no ownership in shares of TSLA and have no plans to initiate any positions within 72 hours.