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Tesla Stock Soars after Argus Raises Target Price

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Tesla (NASDAQ:TSLA) stock jumped nearly 4% yesterday after a prominent Wall Street analyst significantly raised his target price. On the morning of January 7, Argus Research analyst Bill Selesky increased his target price on Tesla stock by $160 to $556. Moreover, the analyst reiterated his “buy” rating on the stock.

Argus Research now has the highest target price for Tesla stock, according to a CNBC report. The updated target price reflects an upside of 19% from its January 7 closing price of $469.06.

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Why Selesky thinks Tesla stock will cross $550

Selesky cited Tesla’s better-than-expected deliveries in the fourth quarter as the main reason for the upward target price revision. During the fourth quarter, Tesla shipped 112,000 vehicles, about 6,000 more than Wall Street’s estimate of 106,000 units.

Moreover, the company recorded a 50% year-over-year increase in its overall deliveries for 2019. Tesla’s total shipment of 367,500 vehicles in 2019 also exceeded its low-end delivery target of 360,000–400,000.

China’s production ramp-up to boost Tesla’s earnings

Selesky also remains optimistic about continued revenue growth from Tesla’s legacy Model S and Model X brands. He’s also impressed by the growing popularity of the Model 3, which accounted for approximately 80% of Tesla’s fourth-quarter production. The Model 3 is Tesla’s best-selling electric car. During the fourth quarter, the company delivered 92,550 Model 3 sedans, accounting for 83% of total shipments.

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Considering the rising demand for the Model 3, the company built its third Gigafactory in Shanghai, China. The company started delivering its China-made Model 3 sedan to the public on January 6. Currently, the facility is building 1,000 vehicles per week, which Tesla intends to increase to 3,000 units by 2020’s end.

The Shanghai facility will help Tesla expand its footprint in China, the world’s second-largest electric vehicle market. Tesla expects building cars in China to have a 55%–60% cost advantage compared to manufacturing in the US. Therefore, the Shanghai plant will help Tesla better compete with local players such as NIO (NYSE:NIO) and Xpeng on price point.

Selesky also believes that production in China will boost Tesla’s bottom line results while reducing its costs. Considering the factors mentioned above, the Argus analyst raised his 2020 earnings forecast for Tesla.

Selesky wrote to his clients, “We are raising our 2020 EPS estimate to $5.96 from $4.40 to reflect improved economies of scale in 2020 production and delivery results and a better-than-expected ramp-up of vehicles produced at the Shanghai factory in China,” according to CNBC. Wall Street analysts are projecting EPS of $5.78 for it in fiscal 2020.

Analysts are turning optimistic on Tesla stock

Several analysts have become more confident about Tesla stock following its robust third-quarter results, which it reported on October 23. As a result, the average target price on Tesla stock has increased to $315 from $249.69.

Some major upward target price revisions by analysts are as follows:

  • Credit Suisse raised its target price by $140 to $340.
  • Canaccord Genuity boosted its target price to $515 from $315.
  • Independent Research upped its target price to $280 from $225.
  • Wedbush increased its target price to $370 from $270.
  • Cowen raised its target price by $20 to $210.
  • BNP Paribus boosted its target price by $100 to $400.
  • Citigroup upped its target price to $222 from $191.
  • Piper Jaffray increased its target price to $423 from $372.

Tesla stock was one of the worst performers in the US auto industry until mid-October last year. However, the stock gained a boost after it reported a surprise third-quarter profit on October 23. After that, Tesla stock gained 64.3% until December 31. The stock finally ended 2019 with a gain of 25.7% compared to a decline of 23.5% as of October 23.

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