Despite Tesla's Stock Surge, Even the Biggest Bulls Are Showing Some Restraint

Better Late Than Never?

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Mizuho analyst Vijay Rakesh may have missed out on Tesla Inc.'s spectacular rally in 2024 due to maintaining a neutral stance on the stock for much of the year. However, he now sees considerable potential for further growth as Tesla’s business gains momentum and stands to benefit from potentially favorable policies under a second Trump administration.

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Late Monday, Rakesh upgraded Tesla’s stock to an "outperform" rating from "neutral" and significantly raised his price target to $515, up from $230. This new target suggests an 11% upside from Tesla's current share price. Despite Tesla’s recent surge, which has propelled the stock close to its highest levels of the year, even the most bullish price targets now offer only modest gains relative to the stock's current valuation. Rakesh’s $515 target ties with Wedbush analyst Daniel Ives for the second-highest price estimate, although Ives has outlined a more optimistic $650 bull case.

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Rakesh also presented a notably higher bull-case scenario, forecasting Tesla's share price could climb to $681 under ideal conditions. This projection hinges on “significant growth acceleration” through 2030, driven by advancements in Tesla’s autonomous Full-Self Driving (FSD) capabilities, robotaxi initiatives, and humanoid robots. Achieving these milestones would depend on breakthroughs in artificial intelligence (AI), machine learning (ML), and supportive regulatory policies, he noted.

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The analyst outlined a range of “idiosyncratic tailwinds” that could bolster Tesla’s prospects over the next few years. Among these is the possibility of eased regulatory restrictions on autonomous driving technology, which could pave the way for broader commercialization of Tesla’s autonomy software stack. “We believe [Tesla’s] autonomy software stack is improving towards broad commercialization,” Rakesh wrote. He emphasized that enhanced regulatory approvals in coming years could unlock lucrative licensing revenue opportunities for the company.

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Tesla currently offers its Full-Self Driving software to customers through two payment options: a $99 monthly licensing fee or a one-time upfront payment of $8,000. However, Tesla cannot fully recognize the accrued revenue from these sales until it delivers a Level 4 (L4) or Level 5 (L5) autonomous driving solution. L4 systems are highly automated but allow for occasional human intervention, while L5 systems are fully autonomous and do not require any human involvement. Rakesh predicted that L4 approval could be achieved in the U.S. as early as next year and in the European Union by 2027.

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Additionally, Rakesh highlighted the potential benefits Tesla might enjoy under a second Trump administration. He suggested that Elon Musk’s alignment with Trump’s policies could give Tesla a competitive edge in the electric vehicle (EV) market, especially if consumer EV incentives are scaled back. Tesla’s cost-efficient manufacturing processes make it better positioned than rivals to adapt to such changes, potentially enabling it to outperform competitors in the EV space.

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The analyst also pointed to Tesla’s efforts in humanoid robot development as another area of significant opportunity. “We see humanoid robots ramping similarly to the car industry in the early 1900s,” Rakesh stated. He envisions a future where Tesla’s humanoid robots achieve widespread adoption, contributing to a new and potentially lucrative business segment.

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Overall, Rakesh’s revised outlook reflects optimism about Tesla’s ability to capitalize on its technological advancements, regulatory progress, and favorable political conditions. While he missed the stock’s dramatic rise in 2024, his upgraded price target and bullish scenarios underscore his belief that Tesla still has room to grow in the coming years.

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