This Analyst Picks a Bad Day to Upgrade Tesla Stock

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Tesla was raised to Outperform from Sector Perform at RBC Capital Markets, with analysts saying the electric-vehicle giant’s “focus on supply chain and vertical integration will be a mid-term competitive advantage.”

RBC lowered the price target on shares of Tesla (ticker: TSLA) to $1,100 from $1,175. Tesla shares were falling 2.8% in premarket trading Monday to $677.29, as the broader markets looked poised to fall sharply on fears over inflation and whether Federal Reserve policy to tame it will cause a recession. Tesla stock has declined 34.1% this year amid concerns about Covid-19 disruptions in China and CEO Elon Musk’s deal to acquire Twitter (TWTR).

Tesla said in a proxy statement on Friday that it wants to split its stock 3-for-1.

RBC said second-quarter margins at Tesla could surprise to the upside with investors primed for lower deliveries. Analysts surveyed by FactSet expect Tesla second-quarter deliveries of 287,000. 

RBC said that mid-to-longer term it was “increasingly favorable on Tesla’s industry positioning.”

With the “industry in the early innings of electrification,” the company has benefited from an “oligopoly-like positioning.” While the automotive market will see more competition during its next phase, and likely lead to share losses for Tesla, the analysts said they weren’t overly concerned.

Tesla’s “early focus on vertical integration (not just batteries/raw materials but also motors, semis, software) is likely to pay off especially as industry supply of critical materials may become an issue in 2027/28 and TSLA may be able to control more of their own destiny,” RBC wrote in a research note. “Indeed, it appears Elon’s Master Plan Part 3 is likely to focus on achieving very large scale to shift the transportation/energy infrastructure. TSLA earnings and cash generation over the coming years, in addition to their ability to use their stock as currency, can help them build out and secure materials giving them a strong competitive advantage.”

Analysts surveyed by FactSet rate Tesla stock at Overweight with an average price target of $968.60.

Write to Joe Woelfel at joseph.woelfel@barrons.com