Whether it was tweeting to take Tesla private after the stock reached $420 or making claims about production that people thought were “foolish”, Elon Musk has been extensively criticized throughout his tenure as Tesla’s CEO. Despite this scrutiny, Musk’s company recently became the most valuable automobile company in the world. After growing from nearly $800 per share, just six months ago, to around $2,023 (at the time of publication), Jefferies has adjusted their price target from $1,200 to $2,500.
Jefferies believes that Tesla’s new price target can be justified by the highly anticipated “million mile” battery concept (which refers to the length, in distance, that each battery can last). Currently, batteries being used in Tesla vehicles retain about 90% of their full capacity after the car reaches 200k miles. However, if the “million mile” battery were to be built, Tesla would have the ability to create newer models for consumers to purchase that could reuse the battery between cars.
Tesla’s appeal to consumers extends beyond providing a stylish new car that goes 0-60 mph in 2.3 seconds. The environmental impact of a Tesla is far better than that of any of its counterparts in the current automobile industry. Implementing ideas such as the “million mile” battery could help create positive implications for the environment. Another idea that will provide positive impacts to the environment is the use of lithium iron phosphate (LFP) batteries.
Currently, cobalt is an important ingredient required in the production of a Tesla engine. Elon Musk has slowly improved earlier versions of LFP batteries to a point where they travel 90% of the total distance a cobalt battery engine could. The 10% reduction in miles driven per charge comes with a 20% decrease in the battery cost, ultimately allowing the car to be sold at a $1500 discount. Jefferies argues that the price reduction is more important than driving distance for an average consumer, so affordability will make Tesla more profitable.
Moving beyond battery design, Jefferies points out that the price target raise is partly due to Tesla thinking about vertically integrating the company while also acknowledging the scope of markets it can impact.
Tesla has been one of the hottest and fastest growing public companies in the past year. On August 11th, they announced a 5:1 stock split, effective August 31st, 2020, that drove the share price up $700 and were recently given a new “bull case” price of $3,500 by Wedbush. It will be interesting to see if Tesla can keep building on this momentum and finish the year on a strong note.
Disclosure: At the time of publication, I have no positions in any of the securities mentioned in this article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for creating this article (other than from TheStreet) and have no business relationship with any company whose stock is mentioned in this article.