Tesla will continue its monster run and jump another 55% to $2,322, Wall Street firm says

• Despite Tesla's gravity-defying surge so far in 2020, a Monday note from Piper Sandler argues that the stock has more room to run.
• Sandler increased its price target on Tesla to a street-high $2,322, from $939, implying an upside of 55% from Monday's close.
• The firm employed a 20-year discounted cash-flow model to generate the price target and credited Tesla with first-mover advantage and software potential as reasons to stay long the stock.
• In response to the note, Tesla CEO Elon Musk tweeted, "Wow."
• Tesla has seen a surge in trading activity as investors speculate that the electric-car company may be on the verge of being eligible for inclusion into the S&P 500 index.
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Tesla's gravity-defying rally so far in 2020 is set to continue, argues a note from Piper Sandler published Monday.

The firm more than doubled its previous price target to a Wall Street-high $2,322, from $939, implying 55% upside from Monday's close.

Sandler employed a 20-year discounted cash-flow valuation model to generate its price objective, and it chalked up the increase in its price target to "reflect faster-than-expected share gains." The firm also pointed to Tesla's software opportunity as a reason to stay long the stock.

So should investors ring the register and take profits in Tesla after it surged as much as 328% this year? According to Sandler, "resoundingly, we think the answer is NO."

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"It's hard to see how competitors can catch up," Sandler said, adding that Tesla's building capacity was its biggest constraint to further share gains. The firm said Tesla might still be able to deliver upward of 500,000 cars in 2020, which it added would be "impressive" given temporary factory closings caused by the COVID-19 pandemic.

And Tesla could deliver nearly 4 million cars in 2025, capturing almost 10% of market share in the US, Piper Sandler said.

More important to its price-target increase, Piper said it believed Tesla's software, particularly the full self-driving add-on, could allow Tesla to sell cars at "or even below cost, while still achieving higher operating margins" by the 2030s.

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Risks to Piper's bull thesis include production delays, failure to meet customer expectations, product defects and recalls, supply-chain disruptions, and the slow adoption of electric cars.

In response to the note, Elon Musk tweeted on Monday night, "Wow."

If shares of Tesla continue to remain elevated, Musk could receive a $2.4 billion payout. Shares of Tesla have surged on stronger-than-expected second-quarter delivery data and speculation that the company may be eligible for inclusion into the S&P 500 index once it reports earnings later this month.

Tesla traded down as much as 4% to $1,431 in Tuesday trades.

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