- RBC upgraded Tesla’s shares to Sector Perform after maintaining a bearish view of the stock since January 2019, according to a note on Thursday.
- The company raised its price target to $ 700 from $ 339 and reflected on what went wrong with its bearish call.
- “There is no gracious way to say this other than to say that we were completely wrong about TSLA’s stock,” said RBC.
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A longtime Tesla bear throws in the towel after the stock has rallied 1200% since its January 2019 underperformance launch on the stock.
According to a note on Thursday, RBC shifted Tesla to an underperforming sector performance and raised its price target to $ 700 from $ 339. A move to $ 700 represents a potential downside of 7% from Wednesday’s close.
“There is no gracious way to say this other than to say Tesla’s stock was completely wrong,” RBC said.
The biggest lack in RBC’s original analysis was Tesla’s ability to take advantage of its share price to raise capital cheaply, thereby helping to fund capacity spending and growth, according to the note.
In the past few months, Tesla has raised $ 10 billion in stock offerings on the market, with its latest $ 5 billion hike having less than 1% dilution for shareholders.
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“This shows how easily Tesla can fund future growth as traditional OEMs need to generate significant cash from existing operations to fund their transition to electrification,” RBC explained, adding that the higher share price was “somewhat self-fulfilling for Tesla’s growth potential”.
RBC now expects Tesla to sell 1.7 million cars in 2025 at a compound annual unit growth rate of 28% over 5 years, thanks to the commissioning of additional manufacturing capacity and the maintenance of ” a global electric vehicle market share of around 20%.
Going forward, RBC has argued that Tesla can use its high share price to fund acquisitions, whether it is a traditional automaker for additional manufacturing capacity, suppliers, or raw materials to integrate more vertically, or software / AI companies.
“Tesla’s current valuation is just too high to ignore,” RBC said.
Tesla’s valuation at Wednesday’s close was $ 734 billion, making it the sixth-largest company in the S&P 500.
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