On Wednesday, Baird analyst Ben Kallo reiterated an Outperform rating on Tesla stock with a price target of $252.
Kallo slashed his price target from $316, owing to “recent comments” on the company’s outlook from CEO Elon Musk and the “potential” for softening demand. Still, the analyst’s revised price target assumes about 127% upside for Tesla’s stock, which remains one of Kallo’s “best ideas” for 2023.
The relatively bullish call comes against a very volatile backdrop for Tesla stock as 2022 winds to a close.
Shares of the EV maker tanked 7% on Tuesday following reports that the company’s key Shanghai plant would run at reduced capacity through January, which raised fresh doubts on the current pace of consumer demand.
The stock traded 4% lower in premarket activity on Wednesday, only to reverse those losses and move more than 2% higher to $111 by the afternoon.
Year to date, the stock is down 68% amid signs of weakening demand in the U.S. and China.
Tesla CEO Elon Musk listens during a conversation with legendary game designer Todd Howard at the E3 gaming convention in Los Angeles, California, U.S., June 13, 2019. REUTERS/Mike Blake
Then there’s the elephant in the room: how Musk running Twitter may impact the operations of Tesla.
Nevertheless, here are the factors behind Kallo’s Tesla call.
Profit margins are likely to expand in 2023:
Kallo thinks Tesla’s factories will see more economies of scale in 2023.
“Gigafactories in Austin and Berlin should lift margins by an increasing amount quarter over quarter in 2023 as production ramps,” Kallo said. “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.”
Inflation Reduction Act (IRA) winner:
The IRA’s EV tax credits should support brisk sales of Tesla vehicles, the analyst wrote.
“The IRS released its preliminary guidance on interpreting the tax credits for clean vehicles,” he explained. “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.”
The end of Musk stock sales:
Kallo is taking Musk at his word that the selling of Tesla stock is done for right now.
“Optimistic that sales of shares by Musk have ended through 2023,” Kallo stated. “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.”