JPMorgan analyst Ryan Brinkman raised his price target and earnings estimates on Palo Alto, Calif.-based Tesla, following the unveiling of the Gigafactory idea, and the company's ambitious plans to drastically cut the cost of the battery. Brinkman now has a $164 price target on shares, some $70 lower than where the stock is currently trading.
Tesla shares were falling 3.4% to $236.51 in early Monday trade, as global markets were falling on uncertainty in the Ukraine.
"The fleshed out plans instill greater confidence in the firm's ability to reduce battery cost to a level more conducive to competing in more modestly priced segments, which in our view is necessary to support the type of higher production volumes seemingly implied in the current share price," Brinkman wrote in the note. "We consequently raise our volume estimates, to a total of 288K by 2020 vs. 228K prior, and our EPS estimate to $15.43 in 2020 vs. $14.68 prior, on the higher volume partly offset by higher cost of financing and increased operating expense."This comes following not only the Gigafactory announcement, but a debt offering as well, as Tesla continues to raise capital for the Gigafactory and the company's Gen III model, which CEO Elon Musk has said will cost around $30,000 to $40,000. Tesla originally planned to raise $1.6 billion from the debt offering, but according to Bloomberg, the company raised $2 billion, due largely to enormous demand. The Gigafactory is important to Tesla's plans to get the mass market Gen III car down to the price range that Musk has said in the past. Brinkman noted Tesla shares will trade on headline risk, including "...the naming of gigafactory partners, the receiving of state level incentives, and more details surrounding plans for upcoming models - which we believe could include a Gen III-based crossover utility vehicle and pickup truck in addition to the already discussed entry-level luxury sedan)." In a recent speech at the California Public Utilities Commission captured by Electrek, Musk said the Gen III car would be 20% smaller than the current Model S, would have a 200 mile range, and require a battery around 80% the size of the current battery inside the Model S. --Written by Chris Ciaccia in New York >Contact by Email. Follow @Chris_Ciaccia