Analyst Sees Tesla At $578 On A Decade Of Hypergrowth, Says EV Credits Don't Matter

New Street Research's Pierre Ferragu said that electric vehicle credits for Tesla Inc TSLA are short-term and will go away in three to four years. He added that EV credits do not factor in his earnings model, in an interview with Fox Business.

The Tesla Analyst: New Street Research analyst Pierre Ferragu upgraded Tesla to Buy, with a 12-month target of $578.

The Tesla Thesis: Ferragu said that EV credits do not matter to Tesla's profit as the $1.5 billion credit this year is like free money that Tesla will re-invest in its business. 

Ferragu added that he doesn't value Tesla based on its current year's profit as it is trading at a multiple of 100. According to the analyst, what matters is how Tesla will do in 2025. He sees the Elon Musk-led company making $16 per share just from the automotive business by 2025.

More importantly, the $16 earnings per share do not factor in EV credit revenues as it is "going away relatively rapidly in the next three or four years," he said. 

In his view, Tesla's gross margins excluding credits are about 20%, which is a leading gross margin for an electric car manufacturer. The margin will continue to expand with the higher-margin Model Y. 

His research estimates that Tesla had an addressable market for 20 million units. The Model S, 3, X, Y directly addressed 8 million units with an additional "trading up" opportunity of 12 million units. The Cybertruck adds an extra 3 million units.

Why It Matters: Morgan Stanley had upgraded Tesla with a $540 price target, and S&P 500 added the automaker's stock to its index.

Ferragu, in a tweet, said that he didn't care for the company's inclusion in the S&P 500 index, and the move did not feature in his outlook for Tesla.

Price Action: TSLA shares closed higher by 10.20% at $486.64 on Wednesday.

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