Tesla's (TSLA) Share Price Doesn't Capture 'Disruptive Potential', Says Goldman Sachs; Stock Upgraded to 'Buy'

(Updated - May 18, 2016 8:36 AM EDT)

Goldman Sachs upgraded Tesla Motors (NASDAQ: TSLA) from Neutral to Buy with an unchanged price target of $250, implying upside of 22%. Analyst Patrick Archambault sees risk-reward is favorable, as shares fail to capture the company’s "disruptive potential."

"While we believe the volume targets are ambitious, Street and investor expectations seem more grounded and following a 23% decline in the share price post the Model 3 unveil, we do not believe Tesla shares are fully capturing the company’s disruptive potential," said Archambault. "This combined with a more stable macro backdrop (relative to January/February) and increased confidence in Model 3 demand (from orders and our competitive benchmarking) drives attractive risk/reward."

"There are admittedly fewer visible catalysts than before, with the next Model 3 update potentially not until next year. We think the introduction of a mobility service is a possibility, though timing is uncertain as management comments on this have been limited. Ultimately we think the biggest fundamental near-term catalyst will be the ramp of the Model X. While progress appears to have been limited since the 1Q16 update (based on the cadence of April/May deliveries), expectations are low in our view with many on the Sell/Buy sides expecting a cut to Tesla’s 80-90k delivery target. While we acknowledge this risk we view it as discounted and think any positive news on X production would strongly support the shares," added the analyst.

The Goldman Sachs analyst also discussed a potential capital raise at Tesla, and he believes the company will need to raise $1 billion.

"We conduct a deep dive into the physical costs to build out the capacity needed to reach the company’s goal of 500k units by 2018. Under these conditions we forecast a $7.5bn cash use, but that only translates into a $1bn capital raise, after $785mn of ABL availability, and $5.7bn of EBITDA minus cash taxes and interest. We also fine tune our own FCF forecasts for these refined capex numbers and reiterate the capital raise requirements that we initially modeled and do not see much incremental dilution," wrote Archambault.

For an analyst ratings summary and ratings history on Tesla Motors click here. For more ratings news on Tesla Motors click here.

Shares of Tesla Motors closed at $204.66 yesterday.

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