- RBC upgraded shares of Tesla to Sector Perform after maintaining a bearish view on the stock since January 2019, according to a Thursday note.
- The firm upped its price target to $700 from $339 and reflected on what it got wrong in its bearish call.
- “There is no graceful way to put this other than to say we got TSLA’s stock completely wrong,” RBC said.
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A long time bear on Tesla is throwing in the towel after the stock rallied 1,200% since their January 2019 Underperform initiation on the stock.
RBC upgraded Tesla to Sector Perform from Underperform and increased its price target to $700 from $339, according to a Thursday note. A move to $700 represents downside potential of 7% from Wednesday’s close.
“There is no graceful way to put this other than to say we got Tesla’s stock completely wrong,” RBC said.
The biggest miss in RBC’s original analysis was Tesla’s ability to take advantage of its stock price to raise capital inexpensively, helping fund capacity outlays and growth, the note said.
In the past few months, Tesla has raised $10 billion in at-the-market share offerings, with its last raise of $5 billion less than 1% dilutive to shareholders.
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“This shows how easily Tesla can fund future growth whereas traditional OEMs need to generate significant cash from existing operations to fund their transition to electrification,” RBC explained, adding that the higher stock price is “somewhat self-fulfilling to Tesla’s growth potential.”
RBC now expects Tesla to sell 1.7 million cars in 2025 at a 5-year compounded annual unit growth rate of 28%, driven by additional manufacturing capacity coming on line and maintaining global electric vehicle market share of around 20%.
Going forward, RBC argued that Tesla can utilize its high stock price to fund acquisitions, whether it be a traditional automaker for additional manufacturing capacity, suppliers or raw materials to further vertically integrate, or software/AI companies.
“Tesla’s current valuation is just too large to ignore,” RBC said.
Tesla’s valuation as of Wednesday’s close stood at $734 billion, making it the sixth largest company in the S&P 500.