Electric-car maker shares Tesla (TSLA 4.06%) It has been increasing lately. In fact, the stock has doubled to date. Shares are up 43% in the last 30 days alone. You’d think with such impressive profits on the back, the stock would soon cool off. But one analyst thinks the stock could trade much higher 12 months from now.
In a note to investors Friday morning, Wedbush analyst Daniel Ives reiterated his buy rating on the stock and raised his 12-month price target for the asset to $300. Moreover, he added the stock to the company’s “best ideas list”.
Here’s what the analyst is most worried about in the automaker’s shares.
On the way to $300
Thanks to Tesla’s recent victory General Motors (G.M 1.06%) To share its Supercharging network with major automakers, Ives said the deal highlights Tesla’s value in the overall electric vehicle ecosystem.
Specifically, General Motors said its vehicles will get Tesla’s supercharger network starting this year. Although the vehicle fleet must initially use adapters. Starting in 2025, however, new EVs from GM will be built with an entry-level design compatible with Tesla chargers.
This agreement reflects the same notice of partnership between them Ford And Tesla a few weeks ago, in which Ford electric vehicles can access Tesla’s Supercharger network.
Ives used the new partnership between GM and Tesla as an opportunity to raise his 12-month price target from $215 to $300. The analyst thinks such announcements will encourage investors to approach Tesla stock with its overall valuation model, which assigns value to Tesla’s businesses beyond its electric car sales, such as energy storage, the charging network and Tesla’s autonomous vehicle. Driving product development.
A price on the perfect performance
Tesla’s recent deals with automakers Ford and GM highlight that electric vehicles are becoming mainstream and represent good reasons to be more bullish on Tesla as the market leader in all-electric cars, but investors should still carefully consider the risks of investing in the stock. Such a great run.
For example, Tesla stock currently has a price-to-earnings ratio of 68. This means that the market has priced out the company’s very strong earnings growth over a long period of time. This is, of course, a fair expectation; Tesla’s deliveries rose 36 percent year-over-year in the company’s most recent quarter as deliveries continued to rise. But recent financial results have highlighted the risks. Operating income fell 24% year over year during this period. The scale has come under pressure as Tesla cuts prices to counter a slowdown in demand due to high interest rates. If prices have to drop further to sustain Tesla’s high sales growth, investors’ expectations of rapid profit growth may not materialize at the level the market is currently selling into the stock.
Additionally, there is concern that automakers such as Ford and GM will begin to gain meaningful market share over Tesla. Historically, the automotive industry has been extremely competitive. Betting on Tesla stock at this price is a bet that things are different this time around. While Tesla may well hold the competitive lead in fully electric vehicles, there is a risk that this lead will erode faster than expected.
Daniel Sparks has no position in the shares mentioned. The clients may own shares of the mentioned companies. The Motley Fool has positions and recommends Tesla. The Motley Fool recommends General Motors and the following options: Long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.