Tesla stock (NASDAQ:TSLA) received a notable vote of confidence this Monday, with investment firm Canaccord Genuity predicting a massive rally this year amidst the electric car maker’s efforts to close in on the production of the $35,000 Model 3. In its recent note, Canaccord upgraded TSLA from a hold to a buy rating. The company’s 12-month price target for the electric car maker was also raised from $330 to $450 per share, representing a 40% rally from TSLA’s closing price of $305.80 last Friday.
In a note to clients on Monday, Canaccord analyst Jed Dorsheimer stated that the Street appears to be underappreciating the increasing prevalence of electric vehicles on the auto market. The company also pointed out that it expects Tesla to run into fewer challenges this year.
“The EV penetration story is underappreciated by the Street. We see a more stable 2019 with far fewer concerns for investors in the company,” the Canaccord analyst wrote.
While the company’s skeptics viewed the recent price adjustments that Tesla rolled out to its vehicles as a point of criticism, Dorsheimer notes that the electric car maker’s decision to lower the cost of its cars is proof that the cost-cutting and right-sizing initiatives the company has undertaken are resulting in progress in its efforts to produce the $35,000 Model 3. The analyst also notes that Tesla’s financials are showing some degree of strength over the previous quarters.
“We view the recent string of price cuts as further proof that the cost-cutting and right-sizing that the company has undertaken are resulting in concrete movement towards the ultimate goal of an affordable $35,000 Model 3. With the strong operating cash flow generation of $1.23B and cash on the balance sheet of $3.7B, the liquidity concerns and convertible note repayment are no longer valid concerns in our view,” the analyst wrote.
Apart from an optimistic outlook on Tesla’s continuing Model 3 ramp and the company’s finances, Canaccord also noted that concerns around Tesla’s governance have been addressed by the addition of the company’s two new independent board members — Larry Ellison and Kathleen Wilson-Thompson — both of whom appear to be working well with CEO Elon Musk. Canaccord also mentioned Tesla’s Autopilot driver-assist system as a difference-maker in the self-driving field, considering the company’s lead over its competitors and the potential of autonomous driving as a whole in the future of transportation.
Amidst Canaccord’s upgrade, Tesla continues to pursue international deliveries for the Model 3. Over the past week, Tesla has begun deliveries in the European region, with Elon Musk even dropping by on the company’s Tilburg plant to deliver some vehicles himself. Tesla’s efforts to promote the Model 3 in China are also underway, with test drives ongoing in several key cities. Tesla’s determination in China was evident in an incident last week after a test drive Model 3 Performance unit crashed in Shenzen, China. Despite concerns that Shenzen might not have another test vehicle for a while due to the accident, Tesla was able to ship another Model 3 Performance to the city quickly, allowing it to restart its test drive program almost without a hitch.
So far, Canaccord’s updated ratings on Tesla appear to be received well by the company’s investors. As of writing, Tesla stock is trading up 3.47% on Monday’s open, trading at $316.49 per share.
Disclosure: I have no ownership in shares of TSLA and have no plans to initiate any positions within 72 hours.