Tesla Chairman Elon Musk told the Bloomberg Dec. 21 that he had “absolutely” seen a chance that Tesla could become the world’s biggest automaker, without making the obvious joke at the expense of German automakers. Then on Friday, analysts at brokerage firm Wedbush set their target price for the company to $1,400 a share.
The optimistic outlook was the result of a research note detailing the cost-cutting initiative—including replacing labor in some parts of the U.S. with automation—and the market’s response to it. “The upgraded ZEV [zero emission vehicle] credits, China order, Tesla sales growth, factory operational improvements, and ramp-up in Model 3 production have all contributed to a potential $380B market capitalization,” the analysts wrote in the note. “We think the shares are worth $1,400.”
The analysts continue: “The bull case — $1,420 — assumes a 10% reduction in operating costs in 2018 relative to 2018 run rate, revenue of $63B, and margins in line with 2018 run rate. The bear case assumes Tesla is successful in scaling Model 3 production to 1,000 units per week and can narrow the gap with Model S/X production.”
Watson appears to be considering a competitive approach to his Asian partners, so the strikes at Masahiro Moro, the CEO of Tesla’s local venture partner, are not new. He did not respond to a request for comment regarding a Lian Sun article that claimed Tesla had decided to keep its China factory open, despite the significant tariffs imposed by Beijing on exported cars. Despite the bullish tone in the report, pricing for a Tesla Model S is only $14,000 less in China than it is in the U.S. It is a question of localization and the domestic car market’s many unique nuances and costs.
“You also have a further cut to the tariff for electric vehicles and electric buses,” Sueddeutsche Zeitung business reporter Sebastian Sprenger told Quartz. “It’s very hard to achieve something similar to this to make it cost-effective.” But perhaps this is where Musk’s wager is finally starting to pay off: in an era of tough times for rivals, shrinking losses and surprising share increases, the industry has no problem doing more with less and perhaps even making the Chinese tariff seem a bit blithely small.
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