UBS analyst Patrick Hummel maintained a Sell rating on Tesla with a price target raised from $160 to $410.
With production volumes poised to double in the next two years, Hummel expects Tesla to become the world’s most profitable automaker.
“We take a more bullish fundamental view on Tesla's technology and cost lead in hardware and software,” Hummel wrote in a Thursday report.
By his account, Shanghai Model 3 production and the likelihood of strong Model Y success should drive 300-basis-point gross margin accretion in Tesla’s auto business, and Model Y and Cybertruck sales could yield a $54,000 average selling price in the premium market.
“Further, Tesla's KPIs show a much higher efficiency than incumbent OEMs as there is no drag from any legacy business,” Hummel wrote. “Tesla should meet and exceed margins and cash generation the premium OEMs enjoyed in their best days.”
UBS estimates a 10% operating margin with free cash flow between $3 billion and $5 billion beginning in 2022.
However, Hummel suspects the market has already priced in expectations for a strong fourth-quarter report, a beat on 2020 delivery outlook, and steady Shanghai and Model Y ramping. At the same time, it continues to overlook demand pressure related to the phase-out of EV tax credits. Hiccups could significantly depress the stock price.
At time of publication, Tesla shares traded higher by 1.44% around $577.77.