After visiting the Austin factory, Bank of America set a target price of $400 for Tesla

Overnight, Tesla reached a two-year high, with multiple brokerages raising the company's target price. Bank of America analysts, after visiting Tesla's Texas Gigafactory, raised the target stock price for Tesla by 50 to $400.

Bank of America analyst John Murph stated in a report on Thursday:

After visiting Musk's Gigafactory in Austin, Texas, including meetings with the investor relations department, a factory tour, and test drive experiences, I am confident in its growth prospects for 2025 and beyond, as I believe that autonomous driving and robotics will lead the growth.

Murph further stated:

Tesla is expected to continue improving its profit margins, which are currently driven mainly by hardware, but will increasingly shift towards value-added software with the growth of Full Self-Driving (FSD) software and charging services.

It is expected that Tesla's sales will reach $123.171 billion in 2026, with an improvement in operating profit margins. Net income and free cash flow are expected to grow significantly in 2025 and 2026. We reiterate our buy rating and raise the target price from $350 to $400, based on a 60 times enterprise value/EBITDA multiple.

Significant Progress in FSD, Optimus Development Expected to Accelerate

Murph pointed out in the report that Tesla has demonstrated significant progress in FSD technology and is expected to launch an autonomous taxi service in the future:

Tesla's FSD technology performs excellently in abnormal road conditions, and the intervention frequency is expected to drop to once every 10,000 miles, which is close to the requirements for safely launching an autonomous taxi service.

For reference, Waymo's robotaxi service was already operational before reaching the milestone of one intervention every 17,000 miles, and Tesla believes that with the growth of its artificial intelligence computing power (having installed and activated 50,000 H100 chips as of the end of October), it will soon reach this milestone.

Looking ahead to next year, Murph expects that new models will expand the Total Addressable Market (TAM), and the adoption rate of Full Self-Driving (FSD) is increasing:

Tesla plans to launch a lower-cost model in the first half of 2025, which will increase the Total Addressable Market, with the expected cost of this vehicle being below $30,000, including the current $7,500 electric vehicle tax credit available in the U.S. Tesla has also confirmed that the low-cost model will not be its only new model in 2025.

Additionally, the adoption rate of FSD is rising, with 400,000 subscription users among 1.8 million eligible vehicles as of the first quarter of 2023. In the second and third quarters of 2024, the growth rate of subscription users exceeded that of eligible vehicles. Tesla previously charged several thousand dollars in upfront fees for FSD, but since switching to a subscription model, the adoption rate of FSD has grown even faster.

Furthermore, the development of Optimus may accelerate, Murph stated:

Optimus is currently used for sorting 4680 battery cells within the factory and is testing various use cases. Tesla plans to deploy 1,000 Optimus robots in its factories by the end of 2025. Currently, Optimus accounts for a single-digit percentage of Tesla's computing resources. As the robotaxi technology matures, this will accelerate the development of robotics technology and improve production efficiency in 2026 and beyond