Tesla has 22% upside from current levels as earnings start to accelerate, says Jefferies in an upgrade to 'buy'

• Tesla shares could rise by another 22% over the next 12 months as earnings-growth accelerates, says Jefferies.
• The firm raised its price target on Tesla to $850 from $700, and also upgraded its rating to "buy" from "hold."
• Jefferies also sees Tesla benefitting from the production of more car models.

Tesla will rise 22% from current levels over the next 12 months, Jefferies said in a new report upgrading the stock to "buy" from "hold." The firm cited accelerating earnings growth as a major driving force amid the auto industry's broad shift into the electric-vehicle market.

Jefferies raised its price target on Tesla to $850 to $700.

Automakers are set to improve margins by operating with less and better-allocated capital and Tesla is leading the way on earnings momentum and capital allocation, equity analyst Philippe Houchois said in a note to clients.

Looking into 2022 for Tesla, Jefferies sees higher global battery-powered electric vehicle demand, more battery and assembly capacity, and a broader model line-up including the Tesla S and Cybertruck.

Tesla shares were up as much as 3% on Monday, bringing them to largely flat on a year-to-date basis. The stock's price has come down considerably from record highs reached in January.

"Tesla shares went through a healthy re-basing so far this year with execution risk and 'noise' dominating the investment case while Legacy [original equipment manufacturers] were fighting back with their own transition plans," said Jefferies, in reference to rival auto makers.

But Tesla produced its strongest and cleanest set of financial figures in the second quarter before stepping up its product mix, said Jefferies. It raised its 2021 and 2022 estimates for Tesla's net earnings before interest and tax by 17% each, to $5.5 billion and $8.03 billion, respectively.

"From low model complexity to direct distribution, Tesla is the benchmark [for capital employed] and should remain for sometime even as the model range expands (no legacy to wind down) and the company expands its network of physical stores and repair centers," Jefferies wrote.

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