Tesla (TSLA) Extends Rally on New Street-High Price Target

Tesla Inc. (TSLA) shares rose more than 4% during Wednesday's session after Jefferies reiterated its Buy rating and raised its price target from $1,200 to $2,500 per share – a new Street-high price target for the popular electric vehicle (EV) manufacturer.

Analyst Philippe Houchois raised his 2020 EBIT estimate by 50% following the company's strong second quarter financial results. Driven by better battery density, materials, and industrial processes, the analyst sees logic in the valuation exuberance and said that valuation problems will exist for legacy automakers rather than Tesla over the coming years.

Ahead of Tesla's upcoming battery day event on Sept. 22, CEO Elon Musk also suggested that the auto manufacturer may be able to mass produce longer-life batteries with 50% more energy density in three to four years. In particular, Musk predicted 400 kWh/kg batteries with a high lifecycle produced at volume (rather than in a lab) in three or four years.

Earlier this week, Wedbush analyst Daniel Ives told investors that pent-up demand in China's EV market for Model 3 vehicles and recent price cuts could also create a perfect storm of demand. Based on China's growth story, the analyst predicts $35 per share worth of earnings power by 2025/2026 and raised his "bull case target" from $2,500 to $3,500, although his price target remains much lower.

From a technical standpoint, Tesla stock retested its all-time highs during Wednesday's session following the analyst upgrade. The relative strength index (RSI) moved further into overbought territory with a reading of 78.06, but the moving average convergence divergence (MACD) extended its bullish uptrend. These indicators suggest that the stock could see some consolidation in the near term, but the overall trend remains bullish.

Traders should watch for consolidation between upper trendline resistance at $2,250 and lower trendline resistance at $1,400 over the coming sessions. If the stock breaks out, traders could see fresh all-time highs. If the stock breaks down, traders could see a move to Fibonacci levels of around $889.52, although that scenario appears less likely to occur given the technical strength.

The Bottom Line

Jefferies raised its price target on Tesla to a Street high of $2,500 per share, saying that the firm finds logic in the valuation exuberance and that the real valuation issues lie with legacy automakers. Meanwhile, Tesla CEO Elon Musk suggested that a breakthrough in battery capacity and lifespan may be closer than many analysts had thought.

The author holds no position in the stock(s) mentioned except through passively managed index funds.