Wall Street bulls continue to pile back into Tesla stock, citing a number of potential catalysts.
In a note on Friday, Deutsche Bank analyst Emmanuel Rosner said he believes the rally in Tesla stock is just beginning with several potential drivers for the company in 2023.
“We see 2023 as a pivotal year in which Tesla continues to grow volume at high rates, enter new segments with the Cybertruck and Semi, optimize its manufacturing footprint and capitalize on IRA [Inflation Reduction Act] which will lower its cost and stimulate demand,” Rosner wrote. “We see significant upside to Street 2023 estimates from these factors, with additional gross margin upside from fully self-driving, with every 5% improvement on the global take rate on new sales boosting gross margin by another 80 basis points, which is not in our base case.”
The electric vehicle maker’s stock has risen more than 40% in the past three months, leading the Nasdaq Composite’s 8% gain and outperforming rivals Ford and GM.
Wall Street credits the rise in optimism about new government legislation that will support electric vehicle adoption in 2023 and beyond. Tesla’s strong run in the first two quarters of the year also improved investor sentiment for the stock, which took a slight hit in August amid a broader market pullback.
See more about Rosner’s call:
Rosner sees margin improvement for Tesla:
The Deutsche Bank analyst expects improved production costs to be a key profit driver for Tesla going forward.
“While the company’s gross margin improvement has slowed this year due to costs and inefficiencies from Covid-related lockdowns and new plant growth, we believe Tesla is still on track to grow this metric in 2022,” the analyst wrote. “More importantly, looking ahead to next year, we now forecast that Tesla could increase gross margin by another 300 basis points year-over-year thanks to a positive mix shift toward lower cost of goods sold-manufacturing facilities and benefit from the IRA [Inflation Reduction Act] US battery production credits”
Rosner added: “Starting at a base cost of goods sold/vehicle of $36,000 in 2021 (before the effects of rising raw materials and inflationary costs that the company largely offsets through product price increases), we estimate that the Tesla could generate a $2,400/vehicle (or 6.5%) average cost reduction from expanding its manufacturing footprint in lower costs of goods sold in regions and facilities, and another ~$800/vehicle in US battery production credits in Fremont and Texas, on a global average.”
Overall, he added, “the combined potential cost reduction of $3,200/vehicle could represent a 5.5% average selling price benefit, but we conservatively only boost 2023 gross margins by 200 basis points to 31.5% of 29.5%, representing a 300 basis point improvement from 2022 levels and an increase in adjusted EPS from $6.60 to $7.15, well above the consensus of $5.82.”
Rosner’s long-term view of Tesla:
Lower costs aren’t Tesla’s only headwind in 2023 — the company will have new products, too.
Rosner pointed to a potential boost in demand from Tesla’s Cybertruck and Semi vehicles expected to hit the market in 2023.
“Longer term, we see more room for improvement in gross margin and even higher potential in operating margins as volume increases,” said Rosner. “We continue to see Tesla as one of the most compelling stories in the auto sector thanks to its pricing power, superior cost structure, strong execution and supply assurance, and building more substantial capacity to support significant growth.”
Brian Sozzi is editor-in-chief and Anchor on Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and up LinkedIn.
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