Tesla Just Got Upgraded - Here's Why

Tesla Just Got Upgraded - Here's Why

This morning, there was an upgrade to Tesla by UBS, a large investment bank. The reason for this upgrade was that Tesla's future is brighter than ever. Their price target is $1,100 and EPS is $28 in 2025.

First, Tesla is operationally string with a record-high order backlog of electric vehicles. Tesla also has two new gigafactories ramping - Giga Berlin and Giga Texas. Lastly, Tesla's auto gross margin should exceed 30% after their recent Q2 dip due to the lockdowns in Shanghai, China.

Tesla also has some structural competitive advantages. Tesla's vertical integration is an advantage with the supply chain cost and issues that are happening globally. Tesla's batteries are next industry-wide bottleneck. Tesla's in house cell capacity and sourcing raw materials gives them an advantage.

There are some short term positives as well that will boost Tesla. First, Giga Shanghai production is back to normal now. Tesla AI Day #2 is going to happen in August and an FSD humanoid robot is going to be shown. Tesla is ramping Giga Austin and Giga Berlin throughout the year. Tesla's auto gross margin's will exceed 30% in Q3 and beyond, and the Cybertruck will launch in 2023.

More Tesla Positives

Tesla has a strong innovation pipeline. When you hear about these innovations, they are impressive: The Cybertruck; The Tesla Semi Truck; A dedicated robotaxi; A gigacasting and 4680 battery cells; Tesla FSD full release; Tesla Bot (the Optimus humanoid robot). These innovations will be released from 2022 to 2025. FSD remains the most scalable and profitable AV system for passenger cars, even though the 2022 launch date seems overly ambitious.

What does USB think about recession risk. This is what they had to say: Currently there is concern among investors that recession risk could lead to demand destruction so that the 50% annual growth target could be at risk. This is not a concern to us given Tesla's 1.2% share in the global auto market for 2021, offering plenty of growth potential even in a subdued global auto market environment.

What does USB think about Tesla's cash: All future expansion projects can be financed by Tesla's balance sheet, in our view, and the rising net cash balance will likely soon result in the strongest balance sheet in the global automotive industry. Therefore, higher interest rates and highest cost of equity only matter from a DCF valuation perspective, but are irrelevant for EPS and the capital structure of the company.

UBS predicts Tesla deliveries to be about 1.4 million for 2022, and to be about 9.53 million in 2031. I think their estimates are too low, but they are being conservative - which is what most large investment firms due, probably to avoid any problems that could occur if a company "messes up".

The UBS upgrade is nice, but it's not going to affect Tesla as a company. Tesla has 4 huge business models: selling cars, selling Tesla Energy, selling FSD and using Robotaxis, and Tesla Bot. Each of these is much bigger than the prior.

Do you think the UBS upgrade is good? Will Tesla only produce 9.53 million cars in 2031?

For more, see this video from Dave Lee on Investing:

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Jeremy Johnson is a Tesla investor and supporter. He first invested in Tesla in 2017 after years of following Elon Musk and admiring his work ethic and intelligence. Since then, he's become a Tesla bull, covering anything about Tesla he can find, while also dabbling in other electric vehicle companies. Jeremy covers Tesla developments at Torque News. You can follow him on Twitter or LinkedIn to stay in touch and follow his Tesla news coverage on Torque News.

Image Credit, Tesla Gallery, Screenshot