Jefferies Starts Tesla Motors (TSLA) at Buy, $350 Price Target; China Concerns are 'Overblown'

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Jefferies initiates coverage on Tesla Motors (NASDAQ: TSLA) with a Buy rating and a price target of $350.00 after a survey suggested 500K cars ex-China and 60% 5-year EBITDA CAGR.
"Concerns about China sales are overblown," analyst Dan Dolev said. "With 68% of all respondents considering alternative fuel vehicles and 7% considering a TSLA, selling ~500K cars/year by 2020 is feasible, and would still imply less than 0.5% share of expected 2020 global light vehicle sales. Our detailed revenue build by model shows that with reasonable ASP/volume assumptions revenue can grow at a 35-40% 5-year CAGR."
A detailed peer margin analysis by model and vehicle type paves path to 60% 5- year EBITDA CAGR, the analyst notes. "A side by side comparison of premium/non-premium peers suggests Models S/X could reach 32-33% GM by 2020 (up from 27-30%) with Model III GM improving by over 1,000bps to 22-23%. We expect R&D/advertising spend as % of revenue to converge with tech/OEM peers (350-450bps upside), which along with improving overhead (750-850bps upside) should drive a 60% EBITDA CAGR through 2020."
Further the survey indicates little excitement about Apple/Google cars and Tesla has a distinct competitive advantage with its battery. "The company's relentless drive to improve battery energy storage capacity (car range is 3x the typical BEV), longevity, power delivery and performance while lowering cost per kilowatt-hour (the Gigafactory should reduce battery pack cost/kWh by ~30%) results in a key competitive advantage that helps TSLA."
The firm sees upside of $450 and downside $150 at this point.
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 $230.51 yesterday.
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