Potter’s optimism for action follows an incredible 500% gain for stocks in the past 12 months and an increase of 60% in the past 30 days alone. Can stocks really continue to rise in the next year?
Here’s a look at this analyst’s bullish vision for Tesla stock – and what investors should do with it.
The path to $ 2322
Potter’s new 12-month price target? $ 2,322. This is up from a previous goal of $ 939 and implies a huge advantage over the company’s current stock price of $ 1,500 – a price that is notably up from around $ 250 there is only 12 months old.
The analyst justifies this wild prospect for Tesla action with an upward vision of the company’s potential in the software field. Potter says the automaker will be able to raise the price of driver assistance software in its vehicles from $ 9,000 today to $ 40,000 in the future. A subscription version of the software could cost even more, he believes. This would ultimately translate into a high margin software company that could potentially generate a gross profit margin of 90%.
All of this could place Tesla’s overall operating margins in the mid-20s in 20 years, Potter estimates.
This software success could also allow Tesla to sell its vehicles at a cost (or even less), says Potter.
Tesla CEO Elon Musk said the price of its vehicle software would rise over time, to the point that its vehicles could become significant assets. Potter seems as optimistic as the outspoken CEO of the electric car manufacturer about this.
The big risk
Of course, the biggest risk for these assumptions is whether Tesla can actually deliver on its promise to provide a live software update to its vehicles that will allow them to drive themselves.
Tesla hopes to eventually launch an autonomous taxi service made up of customer vehicles that can be deployed in the fleet when customers are not using them. Tesla would in turn share the revenue with these customers. This is ultimately why the driver assistance software we know today could cost $ 40,000 in 20 years.
But here’s the catch: there’s no certainty that Tesla can actually get away with it. The company even warns on its website that its autonomous driving features “depend on reliability far superior to human drivers, as demonstrated by billions of kilometers of experience, as well as regulatory approval, which can take more than time in some jurisdictions ”.
In short, while Tesla’s driver assistance technology has made impressive strides, it still falls short of a fleet of autonomous taxis – and investors should carefully consider this risk.