While analysts are mixed regarding their expectations for Tesla (TSLA +0.78%) stock from here, the primary trend of their price targets for the growth stock SEO has recently been up. Analysts have been impressed with the company's better-than-expected second-quarter deliveries and Tesla's overall resilience in the face of an uncertain macroeconomic environment.
Let's take a look at why one of the most bullish Tesla analysts thinks shares are worth holding despite the stock's more than 120% year-to-date return. The reasoning for his bullishness? Overall automotive production is picking up more momentum than anticipated, and Tesla's manufacturing trends are no exception. This has Bank of America analyst John Murphy lifting his price targets for stocks in the auto industry significantly. As for his view for Tesla stock specifically, the analyst recently raised his price target from $225 to $300.
NASDAQ: TSLA
Key Data Points
The path to $300
After reporting an 83% year-over-year increase in second-quarter deliveries, Murphy is applauding the electric-car maker's higher-volume business. He believes that better-than-anticipated improvements in supply in the auto industry year to date are making car companies like Tesla more valuable.
Supporting his case, Tesla's production has improved dramatically year over year. Fueling strong second-quarter deliveries of 466,140 vehicles was quarterly vehicle production of 479,700 -- up 86% from the number of vehicles Tesla produced in the year-ago period.
Production was a mess this time last year. Tesla's factory in China endured a significant pause in production during the first half of 2022 as the country's government persisted in strict efforts to curb the spread of COVID-19. Challenges in the supply chain also led to higher costs as demand exceeded supply and lower industrywide production was spread across costly fixed capital investments. Tesla CEO Elon Musk referred to the operating environment as "supply chain hell" in the second-quarter 2022 earnings call.
Note that Tesla's production also improved substantially sequentially. The nearly 480,000 vehicles Tesla produced in Q2 were up 9% from the first quarter of 2023.
Assuming demand remains robust, Tesla is now well-positioned to achieve its target of growing sales about 50% year over year this year.
1 key risk
While it's good to see Tesla's production volume gaining momentum, the risk investors face is demand not living up to the automotive company's rapidly increasing production capacity. We've already seen Tesla take deliberate action to help drive sales growth to keep up with production by slashing the prices of its vehicles as much as 20% earlier this year.
So even though it looks like Tesla may be able to grow deliveries by around 50% this year, investors should watch closely to see if further price cuts will be required. Even better, it would be particularly encouraging if Tesla raised its prices. This would indicate that demand is growing faster than supply. But given the high interest rates for car loans, investors shouldn't count on this.
Whatever the case, it's certainly good news that Tesla has been able to increase its production capacity. But it remains to be seen whether demand can grow as fast as production. Murphy's bullish $300 12-month price target for the stock suggests that he believes Tesla's demand and deliveries will continue growing nicely throughout the year.
