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- Bank of America raised its target price for the Tesla from $ 500 from $ 500 to $ 500 on Monday, setting a new high in the streets and implying an 8% increase in the next 12 months.
- The carmaker’s rising stock price and stock offerings are fueling recursive growth, bank analysts said in a note to customers.
- Tesla can boost its fundamentals by financing new factories with stock sales. Improved deliveries increase stocks and repeat the cycle, the team said.
- This “no-cost capital” trend further secures Tesla’s status as the dominant electric vehicle producer.
- Watch the Tesla trade live here.
Tesla’s “upward spiral of shares” is fueling a repetitive cycle that will push the automaker further ahead of its rivals, according to Bank of America.
Analysts led by John Murphy raised their target price for Tesla from $ 500 from $ 500 to $ 900, implying an 8% increase from Monday morning in the following 12 months. The new target is the highest on Wall Street, exceeding the $ 880 level Morgan Stanley set last week. Analysts maintained a “neutral” rating for the automaker.
Bank of America cited Tesla’s fundraising potential for its more optimistic outlook. The company announced in December that it will sell up to $ 5 billion in shares to raise additional cash for the plant’s expansion. The offer drives a growth cycle that allows Tesla to more efficiently build production capacity while retaining healthy cash reserves, the bank said.
“It is important to recognize that the higher the upward spiral in Tesla shares, the cheaper capital becomes to finance growth, which is then rewarded by investors with a higher share price,” analysts said.
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Tesla fell by 7.2% on Monday amid a broader market slump. The shares remain about 20% higher in the accumulated result for the year, as the automaker’s huge rise in 2020 continues in the new year.
The reverse of Tesla’s recursive growth could pull stocks down just as quickly as they rose, analysts warned. If the self-achievable trend seen in recent weeks collapses, Tesla’s capital tap could dry out quickly and fuel oversold sales. This risk helps explain the volatility of Tesla’s shares recently, the team said.
For now, the bank expects the bulls’ winning streak to continue. Tesla’s ability to aggressively build new factories to meet strong demand will increase deliveries and increase its ability to raise money through stock offers. While production problems and cash shortages plagued the company a few years ago, Tesla’s growing appreciation eases those concerns and cemented the automaker’s position as the world’s largest producer of electric vehicles, Bank of America said.
“Simply put, Tesla is a new disruptive company that may or may not be dominant in the long run, but that does not matter, as long as it can maintain funding for extraordinary growth with almost no capital cost driving capacity expansion,” team.
Tesla traded at $ 847.06 as of 10:25 am ET on Monday. The company has 21 “buy” ratings, 45 “hold” ratings and 20 “sell” ratings from analysts.
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