Tesla (TSLA) is Headed Towards Massive EPS Growth, Predicts Piper Sandler

Featured Image Credit: Pikist

Tesla (TSLA) is headed towards significant growth in its EPS, according to recent predictions from Piper Sandler analyst Alexander Potter. In a recent note, the analyst gave the electric car maker an Overweight rating and an optimistic $2,322 price target. Together with this, Potter also noted that he expects Tesla to post an FY20E EPS of $8.50, up from his previous estimate of $7.83 and significantly higher than the Street’s average. 

Piper Sandler notes that due to Tesla’s Q2 2020 results, there is a good chance that the company could qualify for the S&P 500. Yet despite this, the analyst stated that it is not time yet for Tesla to redeploy capital after its amazing bull run. Potter then noted that ultimately, Tesla could be the “most consequential company in the mobility ecosystem,” and this is unlikely to change within the next decade. Other factors, such as the company’s software edge, could give Tesla further momentum. 

The Wall Street firm’s stance on Tesla is highly optimistic, with the analyst stating that the electric car maker’s original delivery guidance of 500,000 vehicles for 2020 may still be in play despite the pandemic and other headwinds that the company has faced in recent months. This requires a massive amount of effort on Tesla's part, of course, but it could be feasible especially considering the momentum of facilities like Giga Shanghai, which recently boosted its production rate to surpass 4,000 Model 3 per week after reportedly overcoming battery challenges. That’s a run-rate of over 200,000 vehicles a year already, and with only two active shifts. 

* PIPER SANDLER RAISES PT ON TESLA TO $2,322$TSLA pic.twitter.com/Eoh3bJCEl8

— David Tayar (@davidtayar5) July 13, 2020

Potter’s updated delivery outlook for Tesla is 4 million vehicles in 2025, which is also quite optimistic considering that the company’s production facilities like Gigafactory Berlin are only expected to manufacture 500,000 cars per year. This, however, does not seem very farfetched considering that Giga Shanghai seems poised to produce far more than 500,000 vehicles annually once the Model 3 line is fully optimized, and once the Made-in-China Model Y is being produced. Of course, innovations in battery technology that are expected to be announced on Battery Day could also come into play.

The Piper Sandler analyst took a particular focus on Tesla’s software products, which could be the key factor that would allow the company to achieve operating margins in the mid-20s. Currently, Tesla’s software products are represented by the Full Self-Driving suite, which retails for $8,000 upon purchase and small add-ons like the $2,000 Acceleration Boost option for the Model 3 Dual-Motor AWD. Potter, however, sees more opportunities for Tesla’s software offerings, especially as new FSD features get added on and as the company launches its Robotaxi service. 

“We assume that the lump-sum price of the FSD software package will eventually rise to nearly $40k, up from $9k at present, with a 6-year subscription plan costing about ~125% more (in aggregate) than an up-front purchase. Thanks to the high-margin nature of the FSD package, we think that by the 2030s, Tesla could conceivably be selling vehicles at cost - or even below cost - while still achieving higher operating margins,” Potter wrote. 

A thorough discussion of Piper Sandler’s recent note on Tesla could found in the video below, courtesy of YouTube’s TMIO Tesla channel.