Tesla to Outperform at KGI Securities on strong U.S. advantage

KGI Securities has raised their rating on Tesla, Inc. (NASDAQ:) from Neutral to Outperform and increased their 12-month price target for the stock to $335.00. This upgrade comes in light of Tesla’s U.S. investments, which have enabled their Model 3 and Y vehicles to qualify for tax credits of up to $7,500.

KGI Securities analysts wrote in a note, “The price of the Model 3 RWD has fallen to $20-25k in certain states after federal, state, and local incentives are applied, making it competitive with popular ICE sedans. Tesla is expanding Gigafactory Nevada, where 4680 battery cells will be produced, and Panasonic announced it is expanding cell capacity by 10% at Gigafactory Nevada. Based on the US production tax credit of US$35/kWh per battery cell and US$10/kWh per battery module under the IRA, Tesla, and Panasonic together could potentially receive an annual production credit of over US$5.0bn. Furthermore, following Tesla’s announcement that it is opening its supercharging network to non-Tesla EVs in 2024 as part of a US$7.5bn federal program, Ford (US) and GM (US) last week announced they will adopt Tesla’s charging plug standard, which will give their EV customers access to 12k Tesla fast chargers. Higher utilization of Tesla’s Supercharger network will certainly speed up returns from the firm’s sizable upfront investments, which will be accretive to revenue and earnings.”

Additionally, CEO Elon Musk said in a CNBC interview that Tesla’s full self-driving (FSD) system will have its own “ChatGPT moment” soon. This likely reflects his belief that Tesla vehicles will achieve complete autonomy within the current year. This will be made possible through the continuous expansion of their testing fleet, which currently comprises over 400k vehicles in the United States and is steadily growing internationally.

As Tesla’s self-driving capabilities mature, the adoption rate of their FSD feature is expected to increase, resulting in a significant revenue and margin growth for the company in the medium to long term. Elon Musk anticipates that the automotive business will reach a peak margin of 80% when fully autonomous self-driving is considered.

KGI Securities raised their 2024 and 2025 EPS estimates to $5.68 and $8.38. While Tesla is expected to experience a near-term earnings contraction due to its focus on volume sales in a challenging macro environment, analyst Liang believes that the company’s earnings will regain robust momentum by 2025 at the latest. This resurgence will be driven by several factors, including an expanded EV lineup that includes the Cybertruck in the second half of 2023, an increase in software revenue, a roadmap to reduce production costs by 50%, and government incentives.

Shares of TSLA are up 1.02% in mid-day trading on Monday.