A bullish analyst, who reduced the price target for Tesla, Inc. TSLA shares on Monday, said it could be time for investors to look beyond the company’s flagship electric vehicle manufacturing business.
Valuation’s Sustainability: “No matter how well the Cybertruck or other future vehicles ultimately perform, it is no longer possible for TSLA to achieve sustainable valuation upside by relying solely on car manufacturing,” said Piper Sandler analyst Alexander Potter in a note.
The analyst said at the most, he can accord a valuation of $135 per share for its automotive segment, excluding self-driving software. For that, Tesla should be selling over 15 million vehicles per year and generate mid-teens EBIT margin, the analyst said, adding “both of which are unprecedented in the auto industry.”
In a separate note, Potter lowered his 2024 volume estimate for Tesla from 2.18 million units to 1.93 million units.
“So, since our price target is >$135, we must necessarily believe that Tesla’s OTHER businesses will emerge to drive upside,” the analyst said.
“Of these, Tesla Energy seems closest to an upward inflection.”
See Also: Everything You Need To Know About Tesla Stock
Energy Punches Above Weight: Battery-related revenue is poised to rise in importance for Tesla’s overall profit & loss, Potter said. Tesla Energy will account for 12% of company revenue by 2025, double that of the 6% contribution in 2023.
The analyst estimates that the Elon Musk-led company will capture 15%-20% of stationary battery deployments globally. Market share will likely jump in 2024, thanks to the contribution from the Megafactory in Lathrop, California, he said.
By the 2030s, the energy business will likely generate 10 times the revenue that could eventually be made from Cybertrucks, Potter said. He sees Cybertruck’s peak revenue potential at $10 billion per year, assuming unit sales of 165,000 and an average selling price of $61,750.
“Also, due to solid gross margin (low/mid-20s), Tesla Energy ‘punches above its weight,'” the analyst said.
Over half of the $4.4 billion gross profit growth for Tesla between 2023 and 2025 will come from the sales of stationary batteries, he added.
While in the long-term, full-self driving is key for the Tesla thesis, in the next few years, stationary batteries will be a more important driver of growth, Potter said.
Price Action: At last check, Tesla stock was down 4.42% at $179.60, according to Benzinga Pro data.
Read Next: Tesla ‘Erred’ With This Move, Bull Analyst Says As He Reduces Expectations For EV Stock
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