BofA says investors giving Tesla a 'blank check', doubles target price

Analysts at Bank of America upgraded their recommendation for shares of electric vehicle manufacturer Tesla to 'neutral' in recognition that investors were in effect writing the firm a blank check to build out its manufacturing capabilities via a higher stock price.

Indeed, in the same research note, BofA hiked its target price for carmaker's shares from $800 to $1,750.

Notwithstanding the continuing debate about the fundamentals of the company that was raging on, and the fact the blank check might at some point be withdrawn, meant that mechanistically the upwards spiral in the shares was lowering Tesla's cost of equity.

The reason? "Musk’s leadership, a compelling brand, and improved execution are driving an ever- increasing stock price," the analysts said.

"This is direct evidence that the company has unfettered access to low-cost capital, which remains a key advantage that may (and should) be leveraged to accelerate growth to almost 50% per annum over the next five years.

"[...] The inverse of this dynamic is also true, and it is this self-fulfilling framework that appears to explain the extreme moves in TSLA stock to the upside and downside."

At the broker's new fair value estimate, which did not account for the scheduled 5:1 stock split scheduled for 31 August, the firm's shares would be trading on an EV/sales ratio of approximately 8.5, on 55 times' BofA's estimated EBITDA for Tesla in 2021-22 and on a price to earnings growth ratio of 2.3.

To take note of, BofA reiterated its skepticism about Tesla's ability to retain the top spot in the global EV market.