Tesla (TSLA) stock received a price-target increase Friday from a Wall Street analyst who believes gross margins for the automaker's Model 3 will improve as it scales to higher production, thus helping it achieve profitability.
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Nomura analyst Romit Shah raised his price target on the stock to 450 from 420 with a buy rating. That's a 40% premium from where the stock currently trades.
Shah believes the average selling price for the Model 3 sedan is rising as buyers of the vehicle are upgrading to higher performance configurations, including all-wheel drive and long-range batteries. He estimates the average selling price of the Model 3 is approaching $60,000. The car was introduced with a base price of $35,000.
"We believe that Tesla can lower per-unit costs considerably in the coming months, driven by improved fixed-cost absorption and higher labor efficiency," Shah wrote in a research note to clients.
Tesla shares rose 0.5% to 317.66 on the stock market today. Tesla stock jumped almost 10% on Wednesday, following the company's annual shareholder meeting.
'Production Hell'
Shah also expects increased deliveries for the Model S and Model X in the second half, further improving gross profit margins.
He forecasts that automotive gross margin will increase to 25.6% by the fourth quarter. That's up from 19.7% in the first quarter.
During the past few months, Musk has endured "production hell" with continuous Model 3 manufacturing woes as he wrestled with the media over negative coverage.
The company has said it will not need to raise capital this year. It expects to achieve profitability by the end of the third quarter.
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The post Tesla Stock Gets Price-Target Increase As Model 3 Production Improves appeared first on Investor's Business Daily.
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