Tesla | Fundamental Analysis | LONG SETUP !

Last week, Wedbush analyst Dan Ives issued a bullish assessment of Tesla stock. In his commentary in support of his 12-month $1,400 price target for the company's stock, he stated that several catalysts could lead to significant growth in the stock next year. Stressing how well the analyst thinks things could work out for the company in the best-case scenario, his most bullish option for the stock suggests a huge 12-month price target of $1,800, which represents about 65% upside from how the stock trades today.

The analyst's optimism about the stock is impressive - especially when you consider that the stock is already on the upswing. Tesla stock is up a total of 55% in 2021. What's more, even the analyst's more cautious 12-month price target of $1,400 means 28% upside.

That's why the analyst is so high on Tesla stock - and why he can actually foresee something.

In Ives' note to investors, he cited several key catalysts that could push Tesla stock higher, including rising sales in China, rising margins, and new plant commissioning.

Recently, one of Tesla's main growth drivers has been the Chinese market. For example, in 2020, Tesla's product revenues (mostly car deliveries) in the important market were about $6.7 billion - more than double that of about $3.0 billion in 2019 and less than $1.8 billion in 2018.

Underscoring how important this market has become for Tesla, sales in China accounted for 21 percent of the company's total revenue in 2020. In 2021, that percentage should grow even more as Tesla ramps up production at its plant in China. In 2022, Ives predicts shipments in that market could grow to 40% of total shipments.

Not limited to China, Ives believes the company's new electric car plants in Germany and Texas will also contribute to a surge in sales. Currently, demand for Tesla vehicles exceeds supply, and the new production capacity of these plants will help ease production constraints and help boost production and sales. Specifically, the analyst believes that Tesla's annual production volume could increase from about one million units today to two million units by the end of 2022.

Combining the benefits of economies of scale with increased production and sales of the more expensive Model S and Model X after the recent design refresh of these two cars, Wedbush also expects the company's gross margins to improve significantly over the next year and a half. Increased sales of higher-priced, higher-margin cars could be the key to this margin expansion.

To investors who don't follow Tesla, it may seem that the company won't be able to increase production capacity significantly over the next year as it takes advantage of huge demand. But Tesla has a track record of impressive execution, especially when it comes to ramping up production capacity. Indeed, Tesla's plant in China has been ramping up production much faster than its California plant, and company executives have hinted that production could ramp up even faster at its newest plants in Germany and Texas.

While investors shouldn't expect Tesla stock to soar to $1,800 or $1,400 over the next year, Ives makes some good arguments for owning the stock over the long term.