Reuters
- The RBC upgraded Tesla’s shares to Sector Perform after maintaining a bearish view on the shares since January 2019, according to a note from Thursday.
- The company raised its target price from $ 339 to $ 700 and reflected on what was wrong with its bearish call.
- “There is no elegant way to put it other than to say that we understand TSLA’s actions completely wrong,” said RBC.
- Watch the Tesla trade live here.
Tesla has long been throwing in the towel after the shares rose 1,200% since the underperformance of the shares in January 2019.
The RBC upgraded Tesla to the Underperform Perform Sector and raised its target price from $ 339 to $ 700, according to a note from Thursday. A move to $ 700 represents a downside potential of 7% compared to Wednesday’s close.
“There is no elegant way to put it other than to say that we completely missed Tesla’s stock,” said RBC.
The biggest mistake in the original RBC analysis was Tesla’s ability to take advantage of its stock price to raise capital cheaply, helping to finance spending and capacity growth, the note said.
In the past few months, Tesla has raised $ 10 billion in equity offers in the market, with its last $ 5 billion increase less than 1% dilutive for shareholders.
Read More: Jim Callinan returned 83% to investors last year. Here are the 5 growth trends and 5 corresponding stocks that the chief investor is looking at in 2021 to position his portfolio for more explosive growth.
“This shows how easily Tesla can finance future growth, while traditional OEMs need to generate significant cash from existing operations to finance their transition to electrification,” explained RBC, adding that the higher share price is “somewhat self-fulfilling to Tesla’s growth potential “.
RBC now expects Tesla to sell 1.7 million cars in 2025 at a 5-year compound annual growth rate of 28%, driven by additional production capacity entering into operation and maintaining market share in the global electric vehicle about 20%.
Going forward, RBC argued that Tesla can use its high share price to finance acquisitions, be it a traditional automaker for additional production capacity, suppliers or raw materials for additional vertical integration, or software / AI companies.
“Tesla’s current assessment is too big to ignore,” said RBC.
Tesla’s valuation at the close of Wednesday was $ 734 billion, making it the sixth largest company in the S&P 500.
Read More: The $ 138 billion megafund AQR shares a step-by-step guide for investors looking to reduce their portfolio’s carbon footprints – and explains why this change can drive long-term returns