Jefferies Just Raised Tesla 2020 Targets Even Higher

• Tesla Motors Inc TSLA shares are up 35 percent over the past six months, when they touched a low of $190 on March 26.
• Jefferies’ Dan Dolev maintained a Buy rating on the company, while raising the price target from $360 to $365.
• Gigafactory scale benefits and changes to cell chemistry can allow Tesla to reduce battery costs by 50 percent by 2020, Dolev believes.

Analyst Dan Dolev mentioned that Tesla’s ability to sell an affordable Model 3 is highly dependent on the company’s ability to reduce battery costs by changing the cell chemistry and the Gigafactory scale benefits.

Dolev outlined a potential path for Tesla to cut cell costs by 30 percent to ~$88/kWh by using a “more efficient lithium-rich nickel cobalt manganese cathode (vs. NCA), doubling the percentage of silicon in the synthetic graphene anode, replacing the liquid electrolyte with an ionic gel electrolyte which eliminates the need for a separator, and using a water-based electrode solvent for the cathode.”

Gigafactory, which is expected to commence production in early 2016, could drive down pack-level costs by 70 percent via economies of scale, optimization of the supply chain, increased automation and domestication of the production, Dolev said.

Tesla can reduce its battery pack cost from an estimated 21-22 percent of its ASP to 12-13 percent, the Jefferies report mentioned, adding that this would help the company achieve a “vehicle gross margin at the upper-end of peer OEM levels (33% for Models S/X and 23% for Model 3).”

The EPS estimates for 2016 and 2017 have been raised from $3.52 to $3.69 and from $8.23 to $8.57, respectively.