Jefferies raised its Tesla price target to a Street high $2,500 per share from $1,200 on Wednesday, implying a roughly 19% climb from its current levels.- The company's investment case "has too often been reduced to cars," the team of analysts led by
Philippe Houchois wrote in a note to clients, adding that the automaker's battery innovations and cost efficiencies unlock more value. - The valuation gap between legacy automakers and
Tesla is the fault of the former, they said. Older companies will catch up to Tesla's levels only once they ditch outdated products and build out electric-vehicle production, Jefferies added. - Tesla traded as much as 4.8% higher following the report's release.
- Watch Tesla trade live here.
Tesla is well on its way to revolutionizing the auto industry, but its next big steps won't focus on its cars, according to Jefferies analysts.
The team led by Philippe Houchois on Wednesday more than doubled its price target for Tesla shares, to $2,500 from $1,200, implying shares can leap another 19% from their levels at about noon. The new target is the highest on Wall Street and will be adjusted to $500 after the automaker's upcoming 5-for-1 stock split.
"Tesla's investment case has too often been reduced to cars," the team said, adding that Elon Musk's company continues to extend its lead over rivals in brand leverage, software, battery capacity, and other increasingly important fields.
That gap is set to widen even more come September 22, when Tesla holds its highly anticipated Battery Day event. Analysts expect the company to unveil groundbreaking battery-cell technologies, including a unit that can last 1 million miles. Such a product could "upend" the auto industry, Jefferies said. Vertical integration of such innovation into Tesla's solar and energy storage arms would only add to the company's valuation, the team added.
Tesla jumped as much as 4.8% in Wednesday trading following the report's release.
To be sure, even the bullish analysts consider the stock's run-up somewhat illogical. The automaker's shares are up roughly 408% year-to-date and more than 50% over just the past two weeks. Jefferies "cannot pretend to understand the magnitude and speed of share price moves," the team wrote.
But the firm still finds logic in investors' optimism, deeming Tesla shares a play for the auto industry's "permanent revolution."
The valuation gap between Tesla and other automakers results from a problem with the latter's valuation, Jefferies said. It's the legacy companies that are undervalued and will continue to be until they boast strong electric-vehicle sales and spin off their older, less popular businesses, the team added.
Until then, the analysts expect Tesla to justify its lofty share price with continued powertrain innovation, production efficiencies, and third-party battery sales.
Tesla traded at $2,115.56 as of 12:25 p.m. ET on Wednesday.
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