Summary List Placement
- Bank of America on Wednesday boosted its Tesla price target to $550 from $350, implying a roughly 16% upside from Monday’s close.
- The upgrade comes after Tesla on Tuesday announced plans to sell up to $5 billion in new shares, capitalizing on its recent rally.
- The announcement “was evidence of our thesis that TSLA will utilize its stock to raise capital through low-cost equity offerings in order to accelerate aggressive capacity buildout plans globally and drive units/revenue substantially higher, further cementing its status as the dominant EV automaker,” wrote analysts led by John Murphy in a note.
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Tesla shares are poised to surge even higher in the next 12 months following its proposed $5 billion equity offering, according to Bank of America.
The firm on Wednesday boosted its Tesla price target to $550 from $350, implying a roughly 16% upside from Monday’s close. The upgrade comes after Tesla on Tuesday announced plans to sell up to $5 billion in new shares, capitalizing on its recent rally.
“In our view, yesterday’s announcement was evidence of our thesis that TSLA will utilize its stock to raise capital through low-cost equity offerings in order to accelerate aggressive capacity buildout plans globally and drive units/revenue substantially higher, further cementing its status as the dominant EV automaker,” wrote analysts led by John Murphy in a note.
Shares of Tesla dipped as much as 8% in intraday trading Wednesday.
The new price target comes as Bank of America moved forward its "sliding scale of valuation based on the theoretical growth opportunity afforded to TSLA," said Murphy. Bank of America reaffirmed its neutral rating on shares of the automaker.
Bank of America sees that Tesla is using its high stock price to raise more money through share sales, which in turn boosts cash holdings that can be used to enhance future earnings growth.
"It is important to recognize that the higher the upward spiral of TSLA's stock goes, the cheaper capital becomes to fund growth, which is then rewarded by investors with a higher stock price," said Murphy. " The inverse of this dynamic is also true, and it is this self-fulfilling framework that appears to explain the extreme moves in TSLA stock to the upside and downside."
While Tesla's "hyper-growth is not necessarily self-funding," Murphy says that it doesn't need to be as long as the company has access to plentiful low cost capital.
"Simply put, TSLA is a new disruptive (auto) company that may or may not be dominant in the long-term, but that does not matter as long as it can keep funding outsized growth with almost no cost capital driving capacity expansion," he said.
Tesla has gained roughly 435% year to date.
