Just when it seemed like overkill Tesla (NASDAQ: TSLA) Today’s shares could not rise, Piper Sandler analyst Alexander Potter more than doubled his 12-month target price for shares of the electric car maker. The new target is a stop on the street for Tesla shares, implying a rise of around 50%.
Potter’s optimism for stocks follows an incredible 500% gain for stocks in the last 12 months and a 60% increase in the last 30 days. Can stocks really continue to rise for the next year?
Here’s a closer look at this analyst’s bullish outlook for Tesla stocks, and what investors should make of it.
Model S. Image source: Tesla.
The way to $ 2,322
Potter’s new 12-month target price? $ 2,322. This is higher than the previous target of $ 939 and implies a huge advantage from the company’s current share price of $ 1,500, a price that is noticeably higher than about $ 250 just 12 months ago.
The analyst justifies this wild outlook for Tesla stocks with a bullish view of the company’s potential in software. Potter argues that the automaker will be able to increase the price of driver assistance software on its vehicles from $ 9,000 today to $ 40,000 in the future. He believes that a subscription version of the software could cost even more. This would ultimately translate into a high-margin software business that could eventually have a 90% gross profit margin.
Potter believes that all of this could put Tesla’s overall business operating margins in the mid-1920s in 20 years.
This success in the software could also allow Tesla to sell its vehicles at (or even lower) cost, Potter says.
Tesla CEO Elon Musk said the price of his vehicle’s software will increase over time, so much so that his vehicles could become appreciable assets. Potter seems as optimistic as the outspoken CEO of the electric car maker in this matter.
The big risk
Of course, the biggest risk to these assumptions is whether Tesla can truly deliver on its promise to provide an over-the-air software update to its vehicles that enables them to drive on their own.
Tesla hopes to eventually launch an autonomous taxi service made up of customer vehicles that can be deployed in the fleet when customers are not using them. Tesla, in turn, would share revenue with these customers. Ultimately, this is why the driver assistance software we know today could be priced at $ 40,000 in 20 years.
But here’s the trick: There’s no certainty that Tesla can actually accomplish this. The company even warns on its website that its autonomous driving characteristics “depend on achieving reliability that exceeds human drivers, as evidenced by billions of miles of experience, as well as regulatory approval, which may take longer. in some jurisdictions. “
In summary, while Tesla’s driver assistance technology has made impressive progress, it is still far from allowing a fleet of autonomous taxis, and investors should consider this risk carefully.
