This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
What happened
Shares of Tesla Inc (NASDAQ: TSLA), the electric car kingpin, soared 5% through 11:30 am EDT Thursday, bouncing back from a post-earnings sell-off in the share price.
I see a couple of reasons why that might be happening.
So what
Beginning with the obvious (and least interesting) reason: This morning, StreetInsider.com reports that analysts at Germany's DZ Bank have upgraded Tesla shares from sell to buy, and more than doubled their price target on the stock, to $750 a share.
That's a pretty impressive number -- about 11% higher than where Tesla shares trade today. But there are few details available on why DZ upgraded. Moreover, DZ Bank isn't quite a household name here in the U.S., so I'm not sure investors would be inclined to give this upgrade much weight.
More interesting than DZ's upgrade are some comments made by Morgan Stanley analyst Adam Jonas this morning. In the course of reiterating his overweight rating and $900 price target on Tesla shares (that's $150 more than DZ predicted), Jonas pointed to Tesla's just-reported 21% profit margin for adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA), and termed it "too high."
Now what
In Jonas' view, Tesla is making too much money selling cars -- but that's a nice problem to have, because it means Tesla now has the option of lowering the prices of its cars to "expand the availability of lower priced Tesla vehicles to as many people as possible" -- potentially even bringing to market a $20,000 electric vehicle by 2030.
Needless to say, in a market where EVs regularly sell for $40,000, $50,000 -- or even $100,000 and beyond -- a move such as Jonas is describing would be a "very big deal" for Tesla, and for the automotive industry as a whole. At a time when rival EV manufacturers are just to emerge and eat into Tesla's market share, it could enable Tesla to undercut essentially all of its competitors on price, and grow to control even more market share than Tesla already does.
Ultimately, the fact that Tesla is "too profitable" today could result in the company becoming even more profitable tomorrow.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
