One of Tesla's biggest bulls just raised his price target again

REUTERS/Stephen Lam

• Nomura raised its price target for Tesla to $450, citing higher Model 3 margins.
• The firm is one of Tesla's biggest bulls on Wall Street.
• Follow Tesla's stock price in real-time here.

One of Tesla's staunches bulls, Romit Shah of Nomura Instinet, has once again raised his price target for the electric-car maker, this time to $450 a share - a 40% upside to Friday's prices.

"We believe Model 3 average selling prices (ASP's) are coming in above forecast due to stronger-than-expected demand for all-wheel-drive and performance configurations," Shah said in a note to clients Friday. "We now estimate blended Model 3 ASP's approaching $60,000 in 2H18."

The Model 3 currently only has a gross profit margin of about 0.3%, the firm estimates. A higher average selling price should help Tesla boost those profits, but it will come at the expense of touting the sedan as its first "mass market" affordable vehicle.

In recent weeks, CEO Elon Musk has been comparing the Model 3 to luxury competitors including Mercedes, BMW, and Audi. With all of the options included - like Autopilot, all-wheel drive, and others - the Model 3 will cost $78,000, Musk tweeted in May. The $35,000 base model won't arrive until "three to six months" after Tesla can reach its goal of producing 5,000 Model 3's per week, Musk said, something it is struggling to do.

Nomura estimates Tesla can get per-unit costs for the Model 3 down to $33,500, but only once it can hit 10,000 vehicles per week. The company is currently producing about 2,560 per week, according to Bloomberg's calculation.

Still, Nomura remains optimistic thanks to Tesla's opportunity in China.

"Management on Tuesday suggested that the announcement of a manufacturing facility in Shanghai is imminent, China is arguably Tesla's most important regional market going forward," Shah said. "We forecast the Current Chinese luxury automotive market to increase from approximately 2 million vehicles per year in 2017 to over 3 million per year in 2022. The introduction of Model 3 will open up a much larger portion of this market and could expand Tesla's regional opportunity by over 20x, in our view."

Nomura's $450 price target isn't the highest on Wall Street, but it is well above analysts' average target of $317. Only two firms, New Street Research and Berenberg, have higher price targets, according to Bloomberg.

Shares of Tesla gained more than 10% following the shareholders meeting earlier this week when the new Shanghai facility was hinted at. The pop cost short sellers, or those investors betting the stock would decline, a cool $1.1 billion.

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