Wedbush analyst Daniel Ives has raised his "bull case" price target on Tesla (NASDAQ: TSLA) from $2,500 to $3,500 on the back of the strong growth in China. The analyst believes that a "robust" production and demand trajectory in China for the third quarter is "worth at least $400 per share in a bull case to Tesla".

"Model 3 demand out of China remains a linchpin of success and appears to be on a run rate to hit 150k unit deliveries in the first year out of the gates for Giga 3 which is driving some strength for Tesla as well as Model Y deliveries starting to ramp as well," Ives wrote in a note issued yesterday to clients.

Model 3 sales in China have increased margins for Tesla, compared to Europe and the United States. Given that Wedbush predicts that China will represent around 40% of global sales for the company by early 2022, increased margins in China will further help the company's profitability.

"We believe that the China growth story is worth at least $400 per share in a bull case to Tesla as this EV penetration is set to ramp significantly over the next 12 to 18 months, along with major battery innovations coming out of Giga 3," Ives added in a note.

Moreover, Ives expects Musk and his team to announce "a number of new potential game changing battery developments," at the "Battery Day", scheduled for September 22.

"The technology innovations around Giga/Fremont remain the key ingredients in Tesla's success on the battery front and we believe the company is getting closer to announcing the million mile battery. In our opinion this battery technology will be very advanced, potentially last for decades, withstand all types of weather/terrain, and be another major milestone for the Tesla ecosystem," it is further said in a note.

All in all, Ives maintained a "Neutral" rating on Tesla stock with a price target set at $1,900. This is around 7% lower than Tesla’s share price on the Friday close of $2,050. Still, the new bull case is presented with a price target raised to $3,500.

"With the China growth story, Tesla could now have $35+ of earnings power by 2025/2026 vs. our prior estimate of $20-$25 and thus we are now increasing our bull case target to $3,500 vs. our prior $2,500 to reflect this dynamic," concluded Ives.

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Shares of Tesla closed at $2110.00 yesterday.