- Bank of America raised its Tesla price target to $ 900 from $ 500 on Monday, setting a new high level and expecting an 8% rise over the next 12 months.
- Rising stock prices and the supply of shares to the carmaker are fueling recursive growth, bank analysts said in a note to customers.
- Tesla can improve its fundamentals by financing new factories through stock sales. Improved deliveries then boost stocks and repeat the cycle, the team said.
- This trend of “cost-free capital”
- Watch Tesla trade live here.
Tesla’s “stock spiral up” feeds a recurring cycle that will further push the carmaker ahead of its competitors, according to Bank of America.
Analysts led by John Murphy raised their price target for Tesla to $ 900 from $ 500, an 8% rise from Monday morning over the next 12 months. The new target is the highest on Wall Street, overshadowing Morgan Stanley’s $ 880 level set last week. Analysts maintain a “neutral” rating of the car manufacturer.
Bank of America cites Tesla’s potential to raise funds for more bullish prospects. In December, the company announced it would sell up to $ 5 billion in stock to raise additional money to expand factories. The proposal drives a growth cycle that allows Tesla to build production capacity more efficiently while maintaining strong cash reserves, the bank said.
“It’s important to recognize that the higher the upward spiral of Tesla’s shares, the cheaper the capital becomes to finance growth, which is then rewarded by investors with higher stock prices,” analysts said.
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Tesla collapsed 7.2% on Monday amid a wider market. Shares remain about 20% higher so far, as the carmaker’s mammoth rally 2020 continues into the new year.
The opposite of Tesla’s recursive growth could pull stocks lower as quickly as they rose, analysts warn. If the self-fulfilling trend seen in recent weeks collapses, Tesla’s capital could quickly dry up and fuel excess sales. This risk helps explain the volatility that Tesla shares have seen recently, the team said.
For now, the bank expects the winning series of bulls to rage. Tesla’s ability to aggressively build new factories to meet strong demand will boost supplies and improve its ability to raise money by offering shares. While production problems and a shortage of money plagued the company years ago, Tesla’s growing appreciation allayed those concerns and strengthened the carmaker’s position as the world’s dominant electric vehicle maker, Bank of America said.
“Simply put, Tesla is a new destructive company that may or may not be dominant in the long run, but it doesn’t matter as long as it can sustain huge growth funding with almost no expansion of capital expansion capacity,” he added. the team.
Tesla was trading at $ 847.06 at 10:25 a.m. on Monday. The company has 21 “buy” ratings, 45 “hold” ratings and 20 “sell” ratings from analysts.
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