Tesla's High Stock Price 'Justified,' Analyst Says After Q3 Deliveries Beat

Tesla Inc TSLA shares traded higher Monday morning after the electric vehicle maker reported better-than-expected vehicle deliveries for the third quarter.

Investors reacted positively to the delivery beat, but Bank of America analyst John Murphy said Monday that Tesla’s $767 billion market cap leaves little room for valuation upside.

The Numbers: On Saturday, Tesla reported 241,300 vehicle deliveries in the third quarter, beating consensus analyst estimates of 221,952 deliveries. Tesla’s delivery number also beat Murphy’s above-average estimate of 223,251 deliveries and represented an acceleration from Tesla’s 201,304 deliveries in the second quarter.

Related Link: Is Tesla's Stock Overvalued Or Undervalued?

Murphy said Model S and Model X deliveries finally began to increase in the third quarter following the launch of next-generation models. Tesla reported 9,275 Model S/X deliveries in the third quarter, nearly quadruple the number of deliveries in the second quarter.

The 16% quarter-over-quarter increase in Model 3 and Model Y deliveries was a positive sign following a sharp slowdown in sequential delivery growth for those two models over the previous four quarters, the analyst said. 

Looking Ahead: Tesla appears on track to hit its 750,000-vehicle delivery target for the full year given consensus analyst estimates are now calling for 856,000 2021 deliveries, he said. 

Yet Murphy said Tesla’s ability to continue to generate impressive growth numbers in 2022 and beyond will likely require the company to continue to raise capital.

At the same time, Tesla will face its first real wave of competition in the EV space in coming years. Tesla has a clear first-mover advantage in the EV space, but Murphy said it’s unclear at this point whether the company can continue to dominate the industry in the long run. 

“Nevertheless, we continue to believe that as long as the company can keep funding outsized growth with almost no-cost capital driving capacity expansion, its high stock price will be justified,” he said.

Bank of America has a Neutral rating and $800 price target for Tesla.

Benzinga’s Take: Regardless of what you think about Tesla’s valuation and its ability to fend off a tidal wave of new EV competition in coming years, it’s hard to bet against a company with a seemingly unlimited supply of new capital.

Since the beginning of 2019, Tesla has raised $14.5 billion in new capital over five different fundraising rounds, and its stock price is up 963% in that time.