Why analysts see few bumps in the road for Tesla’s share price

In the midst of a wider market meltdown, Tesla’s [TSLA] share price has bucked the trend. On 16 April it closed at $745.21, as it continues an upward trend that has seen its price more gain over 120% since 18 March, hitting $798.75 at Monday’s close.

One factor behind this share price increase is the number of short-sellers looking to place their bets ahead of the company’s Q1 earnings announcement on 29 April. But Tesla’s share price has also been boosted by a number of upgrades from analysts who believe that auto manufacturers will rebound when the coronavirus pandemic declines and demand for vehicles returns to more normal levels. 

The share price also jumped over 10% yesterday after reports emerged that the firm planned to call back some of its workers Tesla’s car manufacturing plant this week.

In addition, Tesla’s online sales model means it is not as exposed to the turmoil in the bricks and mortar retail sector, while China’s progress in combatting the spread of COVID-19 means it has been able to take advantage of the easing of restrictions to increase production at its Shanghai plant.

Bullish share price targets for Tesla

The average prediction for Tesla’s share price based on analysts polled by Thomson Reuters is for the company to record a loss of $0.36 cents per share and sales of $5.9bn for Q1. When the announcement comes, share price investors will want to know whether Tesla can fulfil its original full-year delivery target of 500,000 vehicles, and how successful the company has been in reducing costs during the lockdown period.

With Credit Suisse estimating that Tesla’s cash reserves could be dwindling by an eye-watering $300m a week while production is stalled, share price investors will also want to know how its budget has been impacted.

On 14 April, Credit Suisse analyst Dan Levy upgraded Tesla’s share price to neutral and moved his price target from $415 to $580. Longer-term, he predicts a 2025 PE multiple of 18x for Tesla — far higher than other automotive companies. He justified this assessment by suggesting that coronavirus disruption would make it more difficult for legacy automakers to balance the longer-term shift to electric vehicles and that some will suspend development work during this period of disruption.

Goldman Sachs followed with a buy recommendation and a $864 12-month share price target. It also predicted long-term secular growth in the electric vehicle market.

The investment bank’s auto analyst, Mark Delaney, reckons a combination of Tesla’s product leadership, early-mover advantage in the electric vehicle space, and the long development cycles in the automotive sector will help it maintain a strong market position.

Goldman Sachs analysts are also bullish on electric vehicle sales more generally, saying that by 2030 they expect market penetration to increase from 2% to around 15%. Delaney’s target price for the stock is at the top end of analyst estimates.

Investment research firm Jefferies also put a buy call on Tesla earlier this month, with analyst Philippe Houchois observing that the company is “the only legacy-free auto manufacturer engaged in a positive electric vehicle sum-game and leading the industry’s technological transformation.”

Tesla share price vitals, Yahoo Finance, 28 April 2020

Not everyone’s optimistic on Tesla

A note of caution, however, came from Morgan Stanley analyst Adam Jonas. He thinks that while the company’s long-term growth plan was appealing, investors should prepare for a reasonable degree of emerging challenges in the weeks to come, and that the restart of production was unlikely to be seamless.

A poll of 30 analysts offering 12-month price forecasts for Tesla, conducted by CNN, showed a median target of $492.50, with a high estimate of $864 and a low estimate of $240. 

The current consensus among 33 polled investment analysts is to hold stock in Tesla — a rating that has held steady since April.