- On Friday, Alexander Potter of Piper Sandler increased his Tesla price target to $553 from $423 after analyzing China vehicle registration data.
- It's now the highest Tesla price target on Wall Street, and is roughly 15% higher than where shares traded at market close Thursday.
- "If Tesla's Model 3 market share in the United States can be replicated in China - and if this logic extends also to Model Y - then Tesla's annual volume in China alone would eventually exceed 650k units," Potter wrote.
- Watch Tesla trade live on Markets Insider.
Tesla has gained a new biggest bull on Wall Street after a record-setting week for the stock.
On Friday, Alexander Potter, an analyst at Piper Sandler raised his price target to $553 from $423 and reaffirmed his "overweight" rating on Tesla. The price target is the new high on Wall Street, and represents a roughly 15% increase from where Tesla shares traded at Thursday's close.
The increased price target is based on an analysis of China vehicle registration data, Potter wrote in a note to clients Friday. Tesla's Model 3 has disrupted the US luxury sedan market, a performance it may be able to replicate in China, according to Potter.
"If Tesla's Model 3 market share in the United States can be replicated in China - and if this logic extends also to Model Y - then Tesla's annual volume in China alone would eventually exceed 650k units," Potter wrote. Though China's auto market has slowed recently, Potter notes that weakness has been concentraded in the very low-end segment, not the luxury segment where Tesla is competing.
He continued: "We're not sure Tesla can immediately replicate its U.S. success in China (due to the strength of German brands in China), but we are increasing our estimates nonetheless."
Piper Sandler's model now forecasts that Tesla will deliver 112,000 vehicles in China in 2020, 225,000 vehicles in 2021, and 399,000 vehicles in 2022. This pushed their discounted cash flow-based price target to $553.
The Chinese market is one many Tesla analysts are watching closely. In January, the company opened its Gigafactory in Shanghai and delivered the first Model 3 sedans to public buyers. Manufacturing the car in China will allow Tesla to lower the price to better compete in the local electric vehicle market, boost margins, and avoid US tariffs.
Tesla expects to ramp up Model 3 production to 150,000 models a year in the first phase after the completion of the factory, and to eventually grow production to 500,000 vehicles a year according to Bloomberg.
The upcoming Model Y, which Musk predicted in an earnings call in October will have more demand than "probably all of the other cars of Tesla combined," will also be made in China. It's slated to launch this summer.
Earlier this week, Tesla's stock price gained to new highs after the opening of the China factory. That pushed the company's market value to more than the values of Ford and GM combined, and made it the highest-valued US automaker ever.
Tesla has gained roughly 15% year-to-date through Thursday's close.
