Jefferies Upgrades Tesla To Buy On Capacity To Self-Fund, Potential To Split With Musk

Tesla Inc TSLA finally proved itself last quarter — and in the process convinced one analyst team to get in the company’s corner.

The Rating

Jefferies analysts Philippe Houchois and Ashik Kurian upgraded Tesla to Buy and raised their price target from $360 to $450.

The Thesis

By Jefferies’ assessment, Tesla will be one of few automakers to expand its two-year earnings. With tempered and newly realistic goals, as well as opportunity to seize global share of the electric vehicle market, the company is uniquely buffered from exposure to poor auto trends.

“Tesla should continue to stand out with broader price points, battery security of supply, product edge and a brand that transcends the volume/premium divide,” Houchois and Kurian wrote in a note. “In short, in the year ahead we think only Tesla will avoid a volume zero-sum-game or negative margin trade-off in EVs.”

Improvements to final assembly, in particular, could drive outperformance with better flow, increased output efficiency and mitigated Model 3 mix dilution.

Inspired by Tesla’s third-quarter results, the analysts anticipate organic deleveraging with the conversion of the March 2019 maturity. An equity raise no longer seems imminent, and self-funding appears feasible.

A final point to their bull thesis is the prospect of CEO Elon Musk’s departure. They suspect Musk may soon redirect his efforts from Tesla to the product and vision side of things, as well as his various side ventures. Given the company recently struck a high point, the CEO could eye a near-term resignation.

"We think such a move might be better suited to Mr Musk's talents than driving manufacturing efficiency and would benefit Tesla," the note read.

Price Action

At time of publication, Tesla shares were trading up 3.2 percent at $374.77.

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Photo courtesy of Tesla.