Wall Street bulls continue to pile into Tesla stock, citing a variety of potential catalysts.
In a note on Friday, Deutsche Bank analyst Emmanuel Rosner said he believes Tesla stock’s rally is just beginning, with several likely drivers for the company in 2023.
“We see 2023 as a pivotal year as Tesla continues to grow volumes at a rapid pace, enter new segments with Cybertruck and Semi, optimize its manufacturing footprint and capitalize on the IRA [Inflation Reduction Act] which will lower its costs and boost demand,” Rosner wrote. “We see significant scope for an upward revision of 2023 road estimates due to these factors, with additional gross margin upside potential from fully autonomous driving, with a 5% improvement in global adoption rate on new sales adding an additional 80 basis points to gross margin, which is not the case in our baseline scenario.”
The electric-vehicle maker’s stock is up more than 40% over the past three months, outperforming the Nasdaq Composite’s 8% gain and outperforming rivals Ford and GM.
Wall Street attributes the rise to optimism about new government legislation that will support the adoption of electric vehicles in 2023 and beyond. Tesla’s strong execution for the first two quarters of the year has also boosted investor sentiment towards the stock, which took a slight hit in August amid a broader market decline.
Here’s more on Rosner’s call:
Rosner sees margin improvement for Tesla:
The Deutsche Bank analyst expects improved manufacturing costs to be a crucial tailwind for Tesla in the future.
“Although the company’s gross margin improvement has slowed this year due to costs and inefficiencies from Covid-related lockdowns and new factory ramp-ups, we believe Tesla is still on track to increase this metric in 2022.” increase,” the analyst wrote. “More importantly, looking ahead next year, we now forecast that Tesla could increase gross margin by an additional 300 basis points year-over-year, thanks to a positive mix shift toward lower manufacturing costs and manufacturing facilities and benefitting from IRAs.” [Inflation Reduction Act] Battery production credits in the US”
The story goes on
LAS VEGAS, NEVADA – APRIL 9: A Tesla car drives through a tunnel at Central Station during a media preview of the Las Vegas Convention Center Loop on April 9, 2021 in Las Vegas, Nevada. (Photo by Ethan Miller/Getty Images)
Rosner added, “Assuming a base cost of goods sold/vehicle of $36,000 in 2021 (before the impact of rising commodity costs and inflation, which the company largely offsets through product price increases), we estimate that Tesla will sell $2,400 per Vehicle (or 6.5%) average cost reduction from expanding manufacturing footprint at lower cost of goods sold in regions and facilities and additional ~$800/vehicle in US battery manufacturing credits in Fremont and Texas, on global average.”
Overall, he added, “the combined potential cost reduction of $3,200/vehicle could represent a benefit worth 5.5% of average selling price, but we’re conservatively increasing gross margins by just 200 basis points from 29.5% in 2023.” 31.5%, representing a baseline 300 improvement from 2022 levels and an increase in Adjusted EPS from $6.60 to $7.15, well above the consensus of $5.82.”
Rosner’s long-term view of Tesla:
Lower costs aren’t the only tailwind for Tesla in 2023 — the company will also have new products.
Rosner highlighted a potential boost in demand from Tesla’s cybertruck and semi-vehicles, which are expected to hit the market in 2023.
“Longer term, we see more room for gross margin improvement and even greater potential for operating margins as volume increases,” said Rosner. “We continue to view Tesla as one of the most compelling stories in the automotive sector thanks to its pricing power, superior cost structure, strong execution and secured supply and building more significant capacity to support significant growth.”
Brian Sozzi is a freelance writer and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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