Tesla Stock Expected to go as High as 39%

The stock experts at Jefferies have estimated that in the year 2016, Tesla's stock might fluctuate between $360 to $365.

By the next year, analysts have predicted that Tesla Stock might go as high as 39%. Dan Dolev, an analyst at Jeffries, investment banking and equity firm, had maintained his rating of Buy for the automotive and energy storage company, in a note that he wrote out to his clients. Along with maintaining a Buy rating, the stock expert has also given a price target to Tesla’s stock that would range from $360 to $365 in a year’s time.

The analyst’s confidence in the automotive company lies in its battery pack costs on which the research firm has done an in-depth Tesla stock analysis. The present valuation of the electric car company’s stock is based on its low cost Model 3’s demand and execution. The company is planning to keep the price of its Model 3 at $35,000 which would be half as compared to its Model S. The company’s sedan, which is rather categorized as pricey, is solely due to its battery pack, which costs 20% of its average selling price. If the company wants to be successful with its Model 3, it will need to lower these costs down a bit.

By the year 2020, Jefferies analyst suggests that the automotive company brings down its battery pack price by at least 50%. This 50% reduction in the battery pack price will prove to be quite beneficial in the future for the company, as it will help Tesla generate good amount of profits. He stated that doing so could bring the company to an ‘upper-end of peer profitability level.’

By reducing pack-level costs, Dolev is sure that Tesla will be able to save a lot of money on its total battery cost will be a big game changer for the company. By 2020, he says, that the prices can easily be reduced by 70% with the help of economies of scale, reducing cost per unit, supply chain restructuring etc. As per this calculation done by the analyst at Jefferies, which would reduce cost of pack-level, as well as cell-level, could reduce by 50% by the year 2020.

He strongly believes that if the company goes forward with these reduction plans, it will easily be able to get a profit margin of 23% on its Model 3 with a gross margin profit of 33% on its Model S and Model X. To the chief executive officer of the company, Elon Musk, this 50% reduction in costs does not seem unrealistic or even aggressive. The company stated that this is not the ultimate goal but rather the bare minimum that the company is looking for.