Shares of Tesla (TSLA 4.96%) were moving higher on Tuesday, as auto investors reacted to a very bullish note from Piper Sandler -- and a court decision in Germany that didn't go Tesla's way.
Here are the stories that were moving Tesla's shares on Tuesday morning.
Piper Sandler goes all-in -- and then some
In a note that gained wide attention after its release after the market closed Monday, Piper Sandler analyst Alexander Potter raised his firm's price target on Tesla's shares to $2,322, from $939, while unsurprisingly maintaining the equivalent of a buy rating on the stock.
Potter's take is eye-opening, to say the least. He thinks Tesla's annual sales will rise to about 4 million vehicles per year by 2025, giving the company 7% market share in China and 9.5% in the United States. Even better, as Potter sees it, Tesla should be able to generate operating margins in the mid-20% range by then.
Software will drive industry-leading profit margins for Tesla, a Piper Sandler analyst wrote. Image source: Tesla.
We should note that margins over 20% would be unprecedented for mass-market automakers, whose margins tend to fall in the 8% to 11% range during good times. Only Ferrari (RACE -1.93%), which had an operating margin of 24.4% in 2019, regularly breaks 20%. But Ferrari is an ultra-luxury brand that limits its own production to preserve its pricing power -- exactly the opposite of Tesla's mass-market strategy.
What will be the driver of this astounding profitability? Software, Potter wrote. Potter thinks the up-front price of Tesla's "Full Self Driving" option will eventually rise to nearly $40,000, from $9,000 at present, with a six-year subscription plan costing about 125% more. As he sees it, by the 2030s, Tesla could be selling its vehicles -- the hardware -- at or even below cost, while still posting high operating margins.
And the bear case? He doesn't have one. While he admits to some uncertainties around the timing of these achievements, Potter insists that "the general upward trajectory seems certain" and that "Tesla's own capacity is the biggest constraint to [market] share gains."
"In our view, Tesla is the most consequential company in the mobility ecosystem, and this is unlikely to change in the next decade," he wrote. "It's hard to see how competitors can catch up."
Tesla loses Autopilot name case in Germany
A German court ruled that Tesla can no longer promote its advanced driver-assist system under the "Autopilot" name in Germany, on the grounds that Level 5 "autopiloted" driving systems do not yet exist and aren't yet legal in the country.
Germany's non-profit Center for Protection Against Unfair Competition, which brought the case against Tesla, said that the Munich Regional Court also ruled that Tesla's claim (last year) that its cars would have automatic city driving by the end of 2019 was misleading, as that obviously didn't happen.
(Note that while the court's decision refers to "advertising," Tesla's disputed claims were made on its German-language website, not in separate ads.)
Tesla had no immediate comment on the decision. The company has the right to appeal.
