Tesla’s Robotaxi Hype Fuels Bullish Price Targets to $500
Considering how much pain investors of Tesla Inc (NASDAQ: TSLA) had to endure during the first quarter of the year, there are perhaps not many on Wall Street who thought they'd manage to gain the better part of 50% in less than three months.
However, that's exactly what they've done, largely thanks to CEO Elon Musk's stepping back from White House duties, increased hype around their Robotaxi launch, and a sense that the worst-case scenario has already been priced into the stock.
As they continue to consolidate with mostly sideways action since the first week of June, it's a good time to take stock of what the summer might look like for the shares of the automotive giant.
While the stock has undoubtedly received its fair share of negative headlines in recent weeks, there are still many reasons to like Tesla for the long term.
Getting Involved in Tesla
For investors on the sidelines weighing up an entry or an exit, two very interesting and unusual things took place last week that should be closely watched: Tesla received both a pair of Sell ratings and a pair of Buy ratings. For a stock that the bulls and the bears have closely fought over, this hardly clarifies things for investors trying to make a call.
But upon close examination, there's actually a pretty solid opportunity opening up here, and these calls might even make it easier. Let's jump in and take a closer look.
Bears Reiterate Their Case
Starting with the bearish updates, which came first at the start of last week, we saw the teams from both Guggenheim and UBS Group reiterate their Sell ratings on the stock. Unconvinced by Tesla's nearly 50% gain in just a few weeks, the analysts there were happy to overlook the potential upside from the company's much-awaited Robotaxi launch, which took place on Monday.
With its price-to-earnings ratio around the 175 mark, Guggenheim's Ronald Jewsikow also sounded the alarm on Tesla's valuation, which has repeatedly been flagged as a reason to be cautious.
Potential 50% Downside
Even though Tesla's shares have always shown signs of not caring about the underlying PE, Jewsikow's price target of $175 must have raised a few eyebrows. Considering that Tesla closed out last week trading just above $320, it implies that a loss of close to 50% is around the corner.
This would result in shares trading back at 52-week lows, which is an extreme forecast for someone who didn't provide much justification beyond stating that the company's fundamentals are "deteriorating at an alarming rate."
It's true that Tesla's post-April recovery seems to have run out of steam, and it might well be worrying that shares have failed to kick on since their peak in late May, but the stock has still been setting higher highs throughout June, all in the face of their most recent earnings report which was indeed one of their worst updates to their fundamentals in quite some time.
But the fact that the stock has remained consistently higher since then suggests the market doesn't care quite as much about that as the bears might want it to.
Bulls See Big Upside
On the other hand, by the end of last week, Tesla had received two fresh bullish updates: one from Canaccord Genuity Group and one from Benchmark. The latter boosted its price target to $475, just marginally below Tesla's street-high price target of $500, which came from Wedbush earlier this month.
The teams were unanimous in their optimism around the company's Robotaxi launch, which they see as a key milestone in Tesla's journey to offer the most cost-effective driverless cars.
Echoing much of what his peers have shared in recent months, Benchmark's Mickey Legg wrote that "in our view, the company is undergoing an evolution from a trailblazing vehicle OEM to a high-tech automation and robotics company with unmatched domestic manufacturing scale."
As Tesla stock has shown time and again, it has a stronger tendency to be bought for these kinds of reasons than to be sold due to valuation concerns, as flagged by Guggenheim. The fact that the stock is up close to 50% since missing analyst expectations in its May earnings report by a wide margin tells you a lot about how Tesla investors view the longer-term opportunity.
As July approaches, it's expected that Tesla will keep generating mixed opinions, as it has historically. However, the ticker tells the story, and so far, at least, it's telling us that the stock wants to, and will, go higher.
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