Tesla (TSLA) Upgraded on Macro Outlook

Can Tesla's leadership catapult electric vehicle growth?

Its record-shattering Q4 results notwithstanding, Tesla, Inc.'s (TSLA) shares have plummeted in 2022 on growing concerns over recent product recalls and the company's recent capital-intensive factory launches in Berlin and Shanghai. But as the geopolitical tensions caused by the Russia-Ukraine conflict play out across the financial markets, some analysts see Tesla as poised to gain from that disruption as oil prices spike and electric vehicle (EV) makers emerge as a more attractive option to traditional internal combustion engine (ICE) manufacturers.

Key Takeaways

  • Daiwa Capital upgraded Tesla to outperform with a price target of $900.
  • Recent product recalls due to the failure of Tesla's Full Self-Driving (FSD) software and concerns over how quickly its new factories in Berlin and Shanghai can begin production have dampened the stock price in 2022.
  • Tesla's powerful financial complex along with its ability to maintain a high operating margins could lend upside to the stock after the recent correction.

Upgraded to Outperform

Daiwa Capital recently upgraded Tesla stock to outperform with a price target of $900. According to Jairam Nathan of Daiwa Capital, the Russia-Ukraine conflict could catalyze the trend shift in the automobile industry toward faster EV adoption. According to Nathan, Tesla is poised to benefit from this since its outlet in Shanghai provides a cost-effective option as steep oil prices hit Europe. If EV adoption were to accelerate due to the war, Tesla's existing infrastructure gives it a lead over its ICE competitors, which will have to build out EV facilities while also struggling to offset the impact of higher oil prices on their traditional car business.

Nonetheless, Tesla's rivals are working their schedules in the race for an EV. While Tesla indicated that there would be no new model in 2022 and that its Cybertruck is still under wraps due to affordability issues, Ford Motor Company (F) plans on launching its EV truck F-150 Lightning this spring, while General Motors Company's (GM) Silverado is expected in Q2 2023. Rivian Automotive, Inc.'s (RIVN) electric pick-up truck R1T was launched at the end of 2021.

Tesla's plant in Austin, Texas, is expected to start production of Model Y vehicles at the end of the first quarter this year. According to Wedbush analyst Daniel Ives, production starts in Austin and Berlin will be critical to meet demand. Ives expects capacity to double to 2 million by the end of the year.

Earlier, Tesla was upgraded to outperform with a 12-month price target of $1,025 by Credit Suisse analysts Dan Levy and Trevor Young. According to the analysts, Tesla's lead over other original equipment manufacturers (OEMs) and its ability to maintain a high margin despite supply chain issues and factories running at lower capacity justified the upgrade.

Financial Muscle and Future Fundamentals:

Tesla's meteoric appreciation made it a trillion-dollar company and one of the most rewarding financial plays in 2021 after its entry into the S&P 500. That valuation helped the company raise capital through new stock sales and through options trading. It may have paved the way for the company's capital-intensive outlets in Austin and Berlin.

However, future growth may have to come from Tesla's fundamentals: from its ability to get around supply chain issues, address the problem of affordability in the EV market, and maintain its lead as the competition heats up.

Article Sources

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  1. Investopedia. "Tesla Recalls Nearly 54,000 Vehicles over FSD Feature."

  2. Marketwatch. "Tesla Stock Extends $100 bounce after Daiwa Analyst Says Buy, for These Reasons."

  3. Investor Business Daily. "Tesla Stock Dives Despite Earnings Beat as Product Roadmap Lacks Products."

  4. Yahoo. "Tesla Stock Checks All the Boxes, Soars 8% After Credit Suisse Upgrade."

  5. Financial Times. "The Tesla Financial Complex: How Car Maker Gained Influenced Over the Markets."

  6. The Wall Street Journal. "Tesla Plans Stock Sale, Closing Year of Soaring Gains."

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