As Wall Street begins to pile on Tesla (TSLA), picking apart its fundamentals and stock price, one analysts thinks they have it all wrong, and the stock is ready to rally.
Ben Kallo an analyst at Baird has reiterated his Outperform rating on the automaker, setting a price target of $252.
The target is a reduction from his previous target of $316, which he cut due to “recent comments” by CEO Elon Musk on he company’s outlook and a “potential” softening of demand, However the revised target of $252 would still represent a 127% upside for the stock, which Kallo classifies as one of his “best ideas” for 2023.
Kallo’s bullish prediction comes at a time when Tesla is undergoing a very volatile period as 2022 winds down.
On Tuesday, the automaker’s shares fell 7% on news the Shanghai Gigafactory would be running at reduced capacity through January, causing investors to question if there may be a problem with lagging demand.
In pre-market activity Wednesday the stock was down 4%, however by the afternoon it had shed those losses and moved over 2% higher, hitting $111 per share.
Still, it has been a tough year, with the stock having lost 68% year to date as demand has softened both in the US and China.
Of course all of that ignores the elephant in the room, which is what effect Musk’s recent takeover of Twitter will have on the fortunes of the automaker.
Still, Kallo cotes three primary factors behind his call.
First, he predicts profit margins will only improve in 2023, as Tesla factories begin to see benefits from economies of scale. Kallo says, “Gigafactories in Austin and Berlin should lift margins by an increasing amount quarter over quarter in 2023 as production ramps. We are encouraged by reports of production in Berlin reaching milestones of 3K vehicles per week and production targets of 75K in Q123. Despite lowering estimates and reported production cuts, we continue to believe Tesla is the best positioned EV maker in both the near and long term.”
Then, he cites the boon being given to EV makers by the recently passed Inflation Reduction Act, which contains generous EV tax credits which should spur healthy sales of Tesla vehicles. Kallo points out even the Model Y will qualify, noting, “The IRS released its preliminary guidance on interpreting the tax credits for clean vehicles. Importantly, the Model Y is classified as an SUV which qualifies it for the $7.5K tax credit as long as the MSRP remains below $80K.”
Finally, Kallo points out Musk himself has stated he will not be selling any more Tesla shares for at least one year, and probably two. Of this, Kallo wrote, “Optimistic that sales of shares by Musk have ended through 2023. Musk expressed certainty that he would not sell Tesla shares in 2023 ‘under any circumstances’ and likely not for a minimum of 18-24 months. We believe this portion of the overhang from Twitter may finally be removed for 2023.”
