Bank of America lowers its Tesla price target to $700, citing the fading efficacy of equity offerings as the company's stock dips
- Bank of America lowered its price target on shares of Tesla to $700 from $900 on Friday.
- Analysts led by John Murphy, CFA cited the fading efficacy of Tesla's equity offerings.
- Those offerings are still a "much-needed" source of funding, according to BofA.
Bank of America lowered its Tesla price target to $700 from $900 on Friday, citing the firm's diminished ability to "utilize its stock to raise capital through low-cost equity offerings." Shares of the electric-vehicle maker slid 0.4%.
Analysts led by John Murphy, CFA, said that their thesis for Tesla is based on the company's ability to raise capital through equity offerings in order to "accelerate aggressive capacity buildout plans globally and drive units/revenue substantially higher."
Murphy and his team said that as Tesla's stock price, and its key source of still "much-needed" funding, has declined from highs of over $880 per share, they have moved their valuation lower based on the fading "theoretical growth opportunity afforded to TSLA."
The analysts noted Tesla has several downside risks, including an inability to generate positive earnings or free cash flow, a slower ramp in electric vehicle demand, setbacks or lack of advancements in battery technology, fierce competition from incumbents, low gasoline prices, and a loss of management.
Still, BofA's $700 price target represents a roughly 20% potential upside for the stock based on current prices.
BofA isn't the only bullish Wall Street analyst covering Tesla. Wedbush's Dan Ives holds an "outperform" rating and a $1,000 price target on shares of the EV giant.
The analyst maintained his price target despite recently released data from The China Passenger Car Association, which showed 25,845 Chinese-made Tesla vehicles were sold in April compared to 35,478 in March.
The fall in Tesla's China sales is largely attributed to some negative publicity surrounding security concerns about cameras in Tesla vehicles and protests during the Shanghai Auto Show.
Tesla cars have even been banned at some Chinese government offices over security concerns.
Wedbush's Dan Ives said Tesla needs to "play nice in the sandbox with Beijing and smooth out PR issues in the region" if they want to move past the issue."
BofA's new $700 price target is based on a 15-times enterprise value-to-sales multiple and an 89-times enterprise value-to-EBITDA multiple on 2021-2022 estimates, assuming a PEG of 2.5 times on capital-induced growth through 2025.