Here's why one Wall Street firm thinks 'must-own' Tesla will surge 25% over the next year

Tesla CybertruckTesla CEO Elon Musk introduces the Cybertruck.AP Photo/Ringo H.W. Chiu, File

  • Tesla is a "must-own stock" in the transportation sector, according to a Monday note by Alexander Potter of Piper Jaffray.
  • Potter increased his price target on Tesla to $423, a more than 25% upside to where shares currently trade.
  • In addition, Potter said he thinks the Cybertruck is "awesome" and that Tesla could sell more than 200,000 of them per year in the US beginning in 2023.
  • Watch Tesla trade live on Markets Insider.

Tesla, the electric-vehicle maker run by Elon Musk, is the most "impactful disrupter" in the transportation sector, making it a "must-own stock" according to Alexander Potter, an analyst at Piper Jaffray.

On Monday, Potter increased his Tesla price target to $423, which is more than 25% higher than where shares are currently trading. He maintained his overweight rating on shares of the automaker.

Tesla has always had a solid mission statement, loyal fans, and bold designs, Potter wrote in a Monday note. "But lately Tesla has demonstrated some new skills," including high-volume manufacturing, impressive operational-expense control, and frugal capital spending, he said.

To capture how those new skills will impact Tesla's long-term revenue and margin profile, Potter switched to a DCF-based valuation model, which led to his boosted target price.

He previously used a discounted EV/Ebitda multiple based on 2022 estimates, but changed the approach as it "failed to explicitly assign value to years 2023 and beyond."

The year 2023 is important because afterwards, Tesla "will have achieved something resembling steady state operations," Potter wrote. This means the full vehicle lineup should have realized scale production in the US as well as in Tesla's Chinese and European Gigafactories, according to the note.

After that, Tesla might be able to sell more than 200,000 of the recently released Cybertrucks per year in the US, Potter said. He also wrote that the Tesla Cybertruck "is awesome," going against many Wall Street analysts who found the "Blade Runner"-inspired electric pickup odd.

Before the truck was unveiled, Potter wrote he was "skeptical" that Tesla's truck could move the needle in pickups, one of the most entrenched segments of the auto industry. And even at first glance at the Cybertruck, he wasn't convinced, he wrote.

But over time, something changed. "The more we looked, the more we began considering the possibility that ALL OTHER pickup trucks might actually be pretty crummy, and that Tesla's Cybertruck is the only pickup worth ordering," Potter wrote.

Tesla has a consensus price target of $283.56, and 11 "buy" ratings, 10 "hold" ratings, and 16 "sell" ratings, according to Bloomberg data.

Tesla is up about less than 1% year-to-date through Monday's close.

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