Call of the week: Biggest Tesla bull predicts shares will hit $500

Seana Smith
·Host

Tesla’s (TSLA) got a new fan and he’s making some bold predictions. Nomura analyst Romit Shah initiated coverage on the electric carmaker this week and he’s now the biggest Tesla bull on the Street.

Shah slapped a buy rating on the stock and said shares are heading to $500, a 41% jump from where the stock was trading as of midday on Friday. His bullish call is driven by one major comparison — Shah predicts Tesla will dominate the electric vehicle market the same way Intel became the king of chips during the PC era in the ’90s.

In a note to clients, he wrote, “Tesla is well positioned because, like Intel in PCs, it is the only vertically integrated provider that owns both manufacturing and much of the supply chain that leads to the car, resulting in lower battery costs and/or higher range. We believe that this lead over competitors will enable Tesla to deliver unprecedented revenue growth and, eventually, healthy profitability.”

According to Shah, the Model 3 costs $140 per mile of range, which he thinks will be reduced to less that $115 per mile by 2020. This compares to the competition’s $236 per mile of range. It’s Tesla’s massive lead in EV range that Shah says will trigger an “unprecedented run-up” in revenue and “enable the company to expand the EV market.”

The bullish call surprised many on Wall Street because of its timing. The carmaker had just announced a big miss on Model 3 production in the third quarter, falling well short of CEO Elon Musk’s ambitious target. Tesla made just 260 Model 3 sedans during the quarter, compared to Musk’s forecast of 1,500.

But don’t let the massive production miss worry you — well, at least that’s what Shah seems to think. He wrote Tesla will “overcome” its Model 3 production constraints and “lead mass-market EV adoption,” predicting Tesla’s total vehicle deliveries will increase from 112,000 in 2017 to 877,000 in 2021 and 1.4 million in 2025

Tesla is a top-performing stock so far this year and has far outpaced the broader indices. Shares have soared nearly 66% since January 1, compared to the S&P 500’s 13.7% gain.