“Bondhead” investors could miss a big opportunity by betting against electric carmaker Tesla and chief executive Elon Musk, according to brokerage firm Nomura Instinet.
Even though Tesla remains one of the most shorted stocks in the U.S. equity market, analysts Romit Shah and Kellan Grenier believe the company could rally to $500 per share over two years, more than 60 percent from its current $303 price.
“We believe that over the next three to six months the narrative on the company will shift from insolvency risk and cash burn to market opportunity and growth,” the analysts said. They have created a chart that sets out a path to an approximately “$100 billion valuation within two years” fr the automaker.
Breaking down the analysts’ bull case, Tesla would have to deliver 1 million autos with an average sale price of $60,000 over the next two years to reach the lofty goal. The analysts also forecast that Tesla could claim 10 percent of global luxury sales by 2022, saying the current top three brands (Mercedes-Benz, BMW and Audi) are “ripe for the picking.”
While Shah and Grenier remain optimistic with a buy rating, it’s likely a tall order for the Palo Alto, California company, which fell short of its weekly Model 3 production goal of 2,500 at the end of the last quarter.
The electric-car maker’s stock is still down since January, partly on concerns over the company’s ability to ramp up production of the Model 3, Tesla’s first attempt at a mid-priced car. Seen by Wall Street as Tesla’s key to unlocking revenue, anticipation over the Model 3 carried the stock to an all-time high of $389.61 in September.
Despite the miss, many investors were relieved by the numbers. Tesla produced nearly 35,000 vehicles in its first production quarter of 2018 — a fourfold increase over the previous quarter, the company said. Tesla expects output to climb rapidly and continues to target a production rate of 5,000 vehicles a week by the end of June.
With 31 percent of floating shares currently sold short, even a small jump higher in Tesla’s stock price could trigger a so-called short squeeze.