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Could Tesla Stock Rise to $423?

By Daniel Sparks – Updated Dec 4, 2019 at 9:06AM

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One analyst thinks so. Here's why he's so bullish.

Tesla's (TSLA 0.56%) new Cybertruck was met with skepticism when it was unveiled last week. Nevertheless, many consumers seem to have warmed up to the vehicle, with reservations rising to 250,000 units less than a week after the truck's unveiling. It's a different story with Wall Street analysts, however.

For the most part, the Street doesn't seem to be convinced that the radically designed fully electric vehicle will generate meaningful sales volume. But one analyst is making a bold bet this week, predicting the Cybertruck will sell in volumes of around 200,000 units per year. Further, the analyst is upping his price target for Tesla stock.

Tesla's Cybertruck

Cybertruck. Image source: Tesla.

The path to 25% upside

Piper Jaffray analyst Alexander Potter boosted his 12-month price target for Tesla shares from $372 to $423 on Tuesday. The analyst said Tesla is a "must-own stock," citing the company's recent demonstration of sustained high-volume manufacturing, "impressive" operating expense control, and "frugal" capital spending.

It's true that Tesla's financials have been improving recently as the automaker keeps its expenses in check. Tesla generated $371 million in free cash flow in its most recent quarter, and management indicated in its third-quarter update that it believes its business "has grown to the point of being self-funding."

The most interesting comments from the analyst, however, were related to Tesla's recently launched truck. Potter says he has warmed up to the vehicle after initially questioning its appeal to consumers. Now he's forecasting 200,000 Cybertruck deliveries per year beginning in 2023.

Can Tesla really sell 200,000 Cybertrucks per year?

Potter's predicted sales volume for Tesla's new truck might actually be possible.

While 200,000 Cybertrucks per year is enough to move the needle for Tesla, it's not a particularly aggressive forecast. After all, Tesla's annualized Model 3 deliveries are quickly closing in on 300,000 units.

Further, Potter's timeline is reasonable considering Tesla is planning to begin production of the vehicle around the end of 2021. This means Tesla will have more than a year to ramp up production to a level high enough to hit 200,000 vehicles per year. Given Tesla's experience with high-volume Model 3 production, it wouldn't be surprising to see the electric-car maker achieve production levels high enough to support 200,000 deliveries per year by 2023.

Though Tesla could very well fulfill Potter's forecast, investors should tread carefully when it comes to predicting the potential of new products. Until Tesla provides more insight into demand for the vehicle and production plans, investors should avoid speculation about how the truck could help Tesla's business.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

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