Autos

Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

Tesla Motors Inc. is on a tear Thursday morning, owing to an analyst upgrade from long-time bull, Morgan Stanley's Adam Jonas.

Jolted
Tesla jumped as much as 4.3 percent on Thursday morning, taking it back to levels last seen in April 2016
Source: Bloomberg

Jonas has been encouraged by, among other things, Tesla CEO Elon Musk's appointment as a strategic advisor to President-elect Donald Trump, as well as growing evidence of electric vehicles entering the mainstream, at least when it comes to strategic planning in the wider auto industry. Above all, Jonas now forecasts Tesla will sell 183,000 units of its forthcoming mass-market Model 3 car in 2018. That's up from a prior forecast of 114,000, though still far below Tesla's stated target of 500,000. Nevertheless, higher Model 3 estimates for 2018 and beyond add $81 to Jonas's price target, taking it from $242 to $305.

Tesla had closed at $238 and change just before Thursday's upgrade, so Jonas's $242 target was looking due for an increase: The last time it was appreciably below Tesla's actual price was back in early 2014, just before Jonas doubled his target.

Tesla bulls are naturally encouraged, but ought to be cautious. I've written before about the stock's curious relationship with analyst targets (which runs both ways). Tesla's share price has now risen above the consensus target for the first time since August 2014, according to data compiled by Bloomberg. Looking back, it hasn't been a portent of good things to come when these two lines converge:

Don't Cross The Streams
The consensus target price has tended to act as a ceiling on Tesla's rallies
Source: Bloomberg

A slew of new analyst upgrades following Thursday's would, of course, raise that target line and widen the gap again. Right now, half of the 16 target prices tracked by Bloomberg are below Tesla's actual price.

Absent this, though, another way to widen the gap is with a stock-price pull-back. One obvious catalyst would be another round of equity-raising from Tesla. The latest one, for $1.7 billion, was led by Morgan Stanley and Goldman Sachs last May and priced at $215. The highest-priced one, back in August 2015, was done at $242, slightly below where the stock trades now. Tesla has been non-committal about the need for selling more shares, although it is difficult to see how it can avoid doing so.

Indeed, even Jonas seems to agree: His own model has Tesla raising $2.7 billion from selling stock -- more than the latest two offerings combined -- in 2018.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Liam Denning in New York at ldenning1@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net