Tesla shares rise as Goldman initiates with 'buy' rating, sees rally above $800

Published Tue, Apr 14 20207:30 PM EDTUpdated Wed, Apr 15 20208:37 AM EDT

(This story is for CNBC Pro subscribers only.) Goldman Sachs is bullish on electric cars and the leader in the space, Tesla . The Wall Street firm returned to its coverage of Tesla with a "buy" rating on Tuesday, sending shares of the stock up 5% in after-hours trading Tuesday. The shares were higher by about 3% in premarket trading Wednesday even as the rest of the market was set to fall. Goldman slapped an $864 per share 12-month price target on the Elon Musk -led electric automaker, implying the stock will rally more than 20% from its Tuesday closing price of $709.89 per share. "We are positive on Tesla because we believe that the company has a signiﬁcant product lead in EVs, which is a market where we expect long-term secular growth," Goldman Sachs autos analyst Mark Delaney said in a note to clients. Goldman said its autos team expects electronic vehicle penetration to increase 2% in 2019 to nearly 15% by 2030 and Tesla is a leader in the industry. The firm said the combination of Tesla's product leadership, brand and early mover advantage and vertical integration will help Tesla to maintain a strong market position. "We also believe that the Model Y will help Tesla to have more traction in the important SUV and crossover market as the price is lower than the Model X," said Delaney. Shares of Tesla are up nearly 70% this year despite the coronavirus pandemic, but they are off more than 20% from their record high. Earlier in 2020, Tesla's stock was seen as speculative for its triple-digit rally and a lofty valuation. Goldman said the quick economic downturn will be an opportunity to get in at a reasonable price on the market leader. "While we expect the current industry downturn and the shutdown of Tesla's Fremont factory due to COVID-19 to weigh on 2020 results, we'd note that even using a $2 per gallon gas price assumption, we believe that the total cost of ownership (TCO) in the premium car market between a Model 3 and an internal combustion engine car is comparable, and Tesla's cars offer strong performance (e.g., 0-60 acceleration) and safety (5-star safety ratings from NHTSA) features," said Delaney. Goldman said compared to other auto and technology companies, Tesla is attractively valued given its revenue growth. "We also note that Tesla's EBITDA margin in 2021E screens relatively well vs. these peers," Delaney added. Goldman isn't the only Wall Street firm looking to Tesla for electric vehicle leadership. Shares of Tesla rose more than 9% on Tuesday following an upgrade to neutral from underperform at Credit Suisse . The firm said Tesla's competitive advantage in the electric vehicle world has increased as the coronavirus disruption forces legacy automakers to make tough decisions about product investment. —CNBC's Michael Bloom contribu