Tesla (TSLA) PT Raised to $515 at Piper Sandler After Analyzing Tesla Energy and Musk's Compensation

September 17, 2020 5:18 PM EDT
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(Updated - September 18, 2020 7:42 AM EDT)

(updated to add analyst comments)

Piper Sandler analyst Alexander Potter raised the price target on Tesla (NASDAQ: TSLA) to $515.00 (from $480.00) while maintaining an Overweight rating.

The target raised was raised after analyzing Tesla Energy and Musk's compensation. Potter notes these topics can be vexing, but they are growing increasingly material. Management insists that Tesla Energy (batteries+solar) will one day generate as much revenue as Tesla's automotive segment, and for its part, the Wall Street Journal recently claimed that Musk's options package may be hindering S&P500 inclusion.

  • Tesla Energy: "the topic everyone tries to avoid. In our client conversations, we have historically struggled to defend our energy-related forecasts. We suspect the same is true for many of our Sell-Side peers. Even in the cult-like realm of online Tesla fandom, most of the discourse steers clear of Tesla Energy. To address this, we have built a longterm model that sheds light on our forecast (page 2). We now expect Tesla Energy to eventually exceed $200B/yr in revenue, with TSLA controlling over 1/3 of the market for stationary batteries. We anticipate sharply higher demand for these products, particularly in the late 2020s and 2030s, as renewable energy grows toward 40% of electricity generation. Battery demand should rise along with reliance on renewables, due to the intermittent availability of solar and wind resources. For reference, a grid powered by 80% solar and wind would require 12 hours of storage backup - or 2x higher than our forecast for 2040. We anticipate a much smaller contribution from the "solarglass roof"; the onus is on Tesla to demonstrate - and capitalize on - demand for that product."
  • Stock-based compensation. "Elon Musk is compensated in an unorthodox way. Instead of a salary, he receives an options package that, in all likelihood, will eventually make him the world's wealthiest person. But whenever performance-based milestones are crossed, triggering another tranche of vested options, TSLA shareholders must endure sudden up-ticks in stock-based comp (SBC). This line item will be particularly burdensome in the next few quarters, with Tesla expected to book stock-based compensation of $1B+ in 2H20. SBC is a non-cash expense, but it does impact GAAP earnings, which is the preferred metric for inclusion in the S&P500 (hence the WSJ's assertion that SBC expenses may keep TSLA out of the index). To help investors avoid unpleasant surprises, we have built a forecast of expenses related to Musk's options package (see pages 3-5). Importantly, the total expense associated with Musk's plan is known (~$2.3B), so the main question regards the timing of these expenses."

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