China Could Provide 40% of Tesla’s Business by 2022, Says Top Analyst

The Tesla (TSLA) phenomenon is hard to describe. The dry facts state it is a company that makes electric vehicles, disrupting an industry in need of modernization, and working toward a greener future. But many other descriptions could be considered. Is it more like the cult of Elon? A short seller’s nightmare? Or is it a symptom of an over exuberant market about to pop?

Maybe all or none of these. For Wedbush analyst Daniel Ives it is a company on track to meet investors’ lofty expectations. Specifically, by making the most of the EV pioneer’s China opportunity, of which the 5-star analyst said, “The pent-up demand in the China EV market for Model 3’s and recent price cuts are creating a “perfect storm of demand” for Musk & Co. in this key market with increased market share vs. domestic competitors as the Giga 3 success story continues to play out.”

In fact, Ives believes China could represent 40% of Tesla’s global sales by 2022. The “profitability profile” in China is driven by the argument that margins are “incrementally higher on a Model 3 sold in China vs. the US/Europe.”

And according to Ives’ contacts in the region, business is booming. The “production and demand trajectory” in China remains “robust” with sales ahead of expectations in Q3. What this means is that there is “clear momentum heading into year-end.” As if Tesla was lacking momentum…

Overall, Ives’ believes the bullish scenario for Tesla could mean “the China growth story is worth at least $400 per share.” The analyst anticipates Tesla could now have “$35+ of earnings power by 2025/2026 vs. our prior estimate of $20-$25.”

Although Ives puts his bull case price target for Tesla at $3,500, for now, the $1,900 “base case” remains the price target. Tesla’s continued run-up means there’s 7% downside from current levels. As for the rating, Ives remains Neutral (i.e. Hold). (To watch Ives’ track record, click here)

As is customary by now, the Street is having difficulty getting a grip on Tesla’s gravity defying act. The stock has a Hold consensus rating based on a paltry 4 Buys, 15 Holds and 9 Sells. At $1,295, the average price target represents possible downside of 37% over the next 12 months. (See Tesla stock-price forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.