Tesla’s production expansion, surging oil prices bring stock upgrade from Daiwa Securities

By Joey Klender

Posted on February 25, 2022

Tesla’s (NASDAQ: TSLA) plans to expand its production capacity, along with other factors like surging oil prices that could sway consumers to electric vehicles, have contributed to Daiwa Securities analysts upgrading their outlook on the automaker’s stock.

Daiwa analyst Jairam Nathan said Tesla is “best positioned” to satisfy the increases in electric vehicle demand due to its manufacturing expansion plans, which are set to drastically increase the automaker’s annual production capacity. Tesla plans to increase Gigafactory Shanghai’s production output with a new facility, according to reports this week. Additionally, Gigafactory Texas and Gigafactory Berlin are nearing the final approvals in their respective jurisdictions. Tesla is awaiting an EPA certification of the Austin-made Model Y in Texas. In Germany, the company’s factory is working its way through the lengthy and confusing bureaucratic process.

Tesla’s operation in China seems to be where Nathan and other analysts are most bullish regarding the company’s forecast and outlook. The factory in Shanghai manufactured 51.7 percent of the company’s total deliveries in 2021, despite only offering two vehicle models. Tesla has established the Chinese factory as an export hub for European customers while Gigafactory Berlin awaits final approval.

It is not the only factor that is relevant to Tesla’s overall growth as a company, which analysts predict will likely increase due to accelerating EV adoption. While other automakers have struggled with parts and chip shortages, Tesla has done a better job than any other manufacturer in navigating through the lack of supply.

“Tesla’s ability to export out of cost-efficient China and history of better managing chip shortages in 2021 could strengthen its competitive position under the current Russia/Ukraine situation,” Nathan wrote in a note to investors this morning. “At the same time, higher oil prices and potential scenario of fuel shortages, especially in Europe, could accelerate the shift to EVs.”

The current situation in Ukraine also could have some effect on EV adoption in Europe, especially as crude oil prices were trading above $100 a barrel for the first time in nearly eight years yesterday, according to MarketWatch. Increased gas prices due to the conflict could lead consumers to sway toward EVs. The note from Daiwa also said that decreased profit contribution from automaker’s combustion engine sales could ultimately slow the adoption of EVs from manufacturers attempting to transition to electric powertrains. With Tesla expanding manufacturing and other automakers uncertain of the consumer climate for gas cars moving forward, the situation warranted an upgrade on $TSLA stock.

Nathan upgraded Tesla from “Neutral” to “Outperform” but also downgraded his price target from $980 to $900. At the time of writing, Tesla shares were trading at $801.83, up just 0.13 percent.

Disclosure: Joey Klender is a TSLA Shareholder.

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Tesla’s production expansion, surging oil prices bring stock upgrade from Daiwa Securities