Tesla's Irreplicable Panache Merits An Upgrade

Citing hands-on experience driving a Tesla Inc TSLA vehicle for seven months and the investor meetings conducted with the company, Piper Jaffray upgraded its shares to Overweight and lifted its price target.

Captivating Experience

Analyst Alexander Potter views Tesla as conjuring up visions of optimism, freedom, defiance and a host of other emotions, which cannot be replicated by competition.

"As they scramble to catch up, we think Tesla's competitors only make themselves appear more desperate. With this in mind, even if the Model 3 production launch goes badly, we think customers (and more importantly shareholders) will withhold judgment," the analyst said.

Bears Won't Matter

Piper Jaffray noted that Tesla remains unscathed despite defying the rules. The firm put forth its argument based on the cash burn rate of the company, a rate that might have invited shareholder wrath even with better-established companies, given Tesla's rickety balance sheet and penchant for raising equity. Additionally, the firm pointed to the unreasonably fast production timelines of the company, its avoidance of the LiDAR self-driving system and the direct sales model it is pursuing, which has put it at loggerheads with the dealers.

Raising Estimates

The firm said it is now more convinced that Model 3 deliveries will begin in 2017, as against its earlier assumption of a mid-2018 commercial launch. Accordingly, the firm tinkered with its forecasts, raising sales estimate but lowering near-term earnings per share estimate to reflect launch inefficiencies.

"We now expect a more aggressive increase in Model 3 shipments through 2021 (hence our higher estimates), but we assign no credit for new vehicle models or upside in Energy Generation & Storage," the firm added.

Piper Jaffray now estimates 2017 revenues of $11.029 billion and a loss per share of $4.83. For 2018, the firm expects revenues of $19.55 billion and a loss of $0.11 per share.

As such, the firm upgraded shares of Tesla to Outperform from Neutral and it also lifted its price target to $368 from $223.

In pre-market trading, shares of Tesla were up 2 percent at $308.60.

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