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- Bank of America lifted its price target for Tesla to $900 from $500 on Monday, setting a new street-high level and implying an 8% climb over the next 12 months.
- The automaker's soaring share price and stock offerings are fueling recursive growth, the bank's analysts said in a note to clients.
- Tesla can boost its fundamentals by funding new factories with stock sales. Improved deliveries then push shares higher and repeat the cycle, the team said.
- This "no-cost capital" trend further secures Tesla's status as the dominant electric-vehicle producer.
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Tesla's "upward stock spiral" is feeding a repetitive cycle that will further push the automaker ahead of its rivals, according to Bank of America.
Analysts led by John Murphy lifted their price target for Tesla to $900 from $500, implying an 8% climb from Monday morning over the next 12 months. The new target is the highest on Wall Street, eclipsing the $880 level Morgan Stanley set just last week. The analysts maintained a "neutral" rating on the automaker.
Bank of America cited Tesla's fundraising potential for their more bullish outlook. The company announced in December that it will sell up to $5 billion in stock to raise additional cash for factory expansions. The offering drives a growth cycle that allows Tesla to more efficiently build out production capacity while retaining healthy cash reserves, the bank said.
"It is important to recognize that the higher the upward spiral of Tesla's stock goes, the cheaper capital becomes to fund growth, which is then rewarded by investors with a higher stock price," the analysts said.
Tesla tumbled as much as 7.2% on Monday amid a broader market slide. Shares remain roughly 20% higher year-to-date as the automaker's mammoth 2020 rally continues into the new year.
The inverse of Tesla's recursive growth can drag shares lower just as quickly as they've risen, the analysts warned. If the self-fulfilling trend seen in recent weeks collapses, Tesla's capital spigot can rapidly dry up and fuel outsized selling. That risk helps explain the volatility Tesla shares have seen recently, the team said.
For the time being, the bank expects the bulls' winning streak to rage on. Tesla's ability to aggressively build new factories to meet strong demand will lift deliveries and improve its ability to raise cash through stock offerings. While production woes and cash shortages plagued the company just years ago, Tesla's soaring valuation alleviates those concerns and cements the automaker's position as the world's dominant electric-vehicle producer, Bank of America said.
"Simply put, Tesla is a new disruptive company that may or may not be dominant in the long-term, but that does not matter as long as it can keep funding outsized growth with almost no cost capital driving capacity expansion," the team added.
Tesla traded at $847.06 as of 10:25 a.m. ET Monday. The company has 21 "buy" ratings, 45 "hold" ratings, and 20 "sell" ratings from analysts.
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