JPMorgan boosts its Tesla price target on the strength of delivery data — but still expects the stock to fall 79% over the next year

• Despite Tesla's meteoric rise in 2020, one analyst is sticking to his call that shares are set to fall 79% from current levels.
• In a note published on Monday, JPMorgan raised its price target on Tesla by $20 to $295 on strength in its second-quarter delivery numbers, but reiterated its underweight position.
• The firm said that if Tesla reports better-than-expected second-quarter earnings, it will likely be driven by "lumpy ZEV credit sales or the release of deferred revenue associated with autonomous driving features."
• JPMorgan's note is the opposite of a bullish one published by JMP Securities on Monday, which detailed how Tesla could hit $100 billion in revenue by 2025.
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Tesla's meteoric rise in 2020 hasn't turned all skeptics into full-on believers, but the company is making progress.

In a note published on Monday, JPMorgan raised its price target by $20 to $295 due to better-than-expected second quarter delivery data. Tesla said it delivered 90,650 vehicles in the quarter, nearly 60% higher than JPMorgan's estimate of 57,000.

Still, despite the price target bump, JPMorgan reiterated its underweight rating because of Tesla's "lofty valuation coupled with high investor expectations and high execution risk," according to the note. JPMorgan's $295 price target represents potential downside of 79% from current levels. Tesla would have to fall $1,134 from Tuesday's high to reach JPMorgan's price target.

JPMorgan doesn't expect Tesla to turn a profit in the second quarter, as it expects an earnings-per-share loss of 30 cents. If Tesla doesn't turn a profit in the quarter, that will delay its eligibility to be included in the S&P 500 index. But if Tesla does report better-than-expected second quarter earnings, JPMorgan cautioned:

"It could include items of a one-time or somewhat one-time nature, perhaps including lumpy ZEV credit sales or the release of deferred revenue associated with autonomous driving features, such as in some prior quarters."

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ZEV credits refer to regulatory zero-emission-vehicle credits often awarded by states to auto manufacturers as an incentive for them to create more electric vehicles. Auto manufacturers need to earn a certain amount of credits each year, either through the production of a quota of electric vehicles, or by buying ZEV credits from other automakers.

In 2019, Tesla sold $594 million worth of ZEV credits, representing 2.4% of its 2019 revenue of $24.6 billion.

JPMorgan derived its $295 price target on Tesla from a 50-50 blended valuation model using discounted cash flows and a 2021 multiples-based analysis.

The firm did acknowledge three upside risks to its bearish price target on Tesla:

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1. "The demand for Tesla vehicles could rise materially beyond our expectations."

2. "Gasoline prices could increase or government penalties and regulations on rival internal combustion engine vehicles could increase, which could drive adoption toward electric vehicles, benefitting Tesla."

3. "Better than expected execution on operation targets."

JPMorgan's Monday note starkly contrasts with a note from JMP Securities on Monday, which detailed how Tesla could hit $100 billion in annual revenue by 2025.