Why This Bullish Tesla Analyst Is Reducing Their Price Target

Tesla, Inc. TSLA shares have pulled back notably from their all-time highs in a marketwide downturn. An analyst at Jefferies is weighing in on the company's fundamental prospects and the external factors impacting its business.

The Tesla Analyst: Mark Philippe Houchois maintained a Buy rating on Tesla and reduced the price target from $1,400 to $1,250.

The Tesla Thesis: During the Jefferies Auto Conference in March, Tesla execs sounded confident that the recent price increases and long-term supply contracts in place will likely help offset battery cost inflation, Houchois said in a note. The company also noted that backlog and delivery times continue to grow, the analyst said.

Risks from supply chains in general, and chips in particular, remain, he said. 

Giga factories at Austin and Berlin are in production, with customer deliveries imminent, Houchois said. Giga Berlin is seeing an easier ramp given the product similarity with Giga Shanghai and the time Tesla had to perfect the factory while waiting for permits, the analyst said.

Houchois also noted that Giga Shanghai is on track to expand capacity to 1 million units, and a new plant in Shanghai is likely to be announced during the course of 2022.

Related Link: Could Giga Berlin Opening Jump-Start Tesla's Market Share in Europe?

The analyst said he looks ahead to Elon Musk's "Master Plan" Part 3.

"We assume new ambitions will extend well beyond financing, storage and FSD, as these would barely dent a fast-growing cash pile," Houchois said.

Maximizing profit makes sense this year due to the constraints, the analyst said. Besides news earnings streams, Tesla is well positioned to run in-house leasing, he said. This, according to the analyst, will enable Tesla to build its own autonomous vehicles over time.

Jefferies maintained its 2022 volume estimate almost unchanged but increased its average selling price estimate for Tesla, which increases its revenue estimate by 2% to $89 billion and GAAP EBIT by 14% to $12.8 billion. The firm expects Tesla to generate free cash flow of $10 billion and $14 billion, respectively in 2022 and 2023.

The price target revision is to account for a riskier macro and geopolitical environment, according to Jefferies. 

TSLA Price Action: In premarket trading Tuesday, Tesla shares were rising 1.74% to $921.16.

Related Link: The 3 Top Features Tesla Model Y Owners Want In Their EVs

Photo courtesy of Tesla.