Tesla's Stock Receives 'Buy' Upgrade On European Opportunity, EV Penetration

It’s been a good week for Tesla Inc TSLA. Following a stake increase by Baillie Gifford, Autopilot approval in Europe, and a well-received cut to Model 3 pricing, Tesla's stock earned an upgrade.

The Rating

Canaccord Genuity analyst Jed Dorsheimer upgraded the stock to Buy and raised his price target from $330 to $450.

Wedbush analysts Daniel Ives and Strecker Backe maintained an Outperform rating with a $390 price target.

Tech Leadership

By Dorsheimer’s assessment, the Street is underappreciating macro opportunities for electric vehicle penetration.

“In addition, we view Tesla's coveted autopilot technology as having an almost insurmountable lead in autonomous driving, which will eventually be the key component of future transportation,” he wrote in a note.

New Narrative

Canaccord is now looking beyond Tesla’s long-troublesome ramp process.

“We believe the last two quarters and recent guidance for Q1 have removed significant concerns for both production capability and profitability of the critical Model 3,” Dorsheimer wrote. “As such, we see a more stable 2019 with far fewer concerns for investors in the company.”

Wedbush shares a similar perspective.

“Tesla has now shifted from a production story to a demand story,” Ives and Backe wrote, anticipating year-over-year delivery growth between 45 percent and 65 percent.

They expect a rollout of $35,000 base-version Model 3s in late summer to drive demand in 2019 and 2020 and ramp profitability over the next year and a half.

Foreign Shipments

As EV credits dwindle in the U.S. and depress domestic demand, Wedbush has shifted its near-term focus on Model 3 demand and delivery in Europe, particularly in Norway, the Netherlands and Germany. Management recorded its first deliveries last week.

“While there have been some delivery speed bumps/service snafus in the European delivery process, it appears the timing of deliveries and ramping demand is on track almost midway through 1Q,” Ives and Backe wrote.

International shipment logistics could create overhang, but the region should ultimately bolster Tesla’s bottom line.

“With strong shipments into EU and China, we expect that the initial ‘tiny profit’ Q1 expectation that the company announced in early January will prove to be the low point in EPS for the year and expect that the ramp towards year end may quell the short thesis,” Dorsheimer wrote.

A Stacked Team

Dorsheimer also anticipates management improvement.

“Our prior concerns around corporate governance were allayed with the addition of Larry Ellison and Ms. Wilson-Thompson as independent directors, and we believe Elon Musk is demonstrating a calmer demeanor characteristic of strong leaders,” he wrote.

Price Action

At time of publication, Tesla shares traded up 2.3 percent at $312.90.

Related Links:

Model 3 Mayhem, China Prospects: Analysts Reflect On Tesla's Mixed Q4 Earnings

Analysts 'Not Overly Concerned' About Tesla's CFO Retirement