Tesla Seen Making 1 Million Cars Annually By 2025

Tesla Motors‘ (NASDAQ:TSLA) stock jumped after Deutsche Bank upgraded the electric car maker to buy on views that its “growth trajectory” will top expectations as “additional assembly facilities” boost production to at least 1 million units annually by 2025.

Analyst Rod Lache raised his stock rating to buy from hold and upped his price target to 310 from 220.

Tesla’s stock rose nearly 5% in afternoon trading in the stock market today Shares hit a five-month high intraday of 263.74 on Monday. The stock had hit an intraday high of 265 on Feb. 26.

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“In the previous versions of our Tesla model, we assumed that Tesla’s (production) volumes would increase to 450,000-500,000 by 2019/2020, and that growth would moderate to around 7% per year in subsequent years as the company’s further expansion plans were unclear,” said Lache in a report. “Through our discussions with Tesla management, it has become increasingly that the company is already pursuing the acquisition of additional assembly capacity. While we do not expect any news on this front just yet, we believe that the announcement of one or two additional assembly facilities is likely (each with capacity in the 200,000-500,000 units) by the time that Tesla launches production of its Model 3 (in early 2017). Consequently, we would be surprised if Tesla targets anything less than 1 million units annually by 2025.”

Tesla aims to manufacture 50,000 vehicles annually by the end of 2014 and double production to 100,000 by late 2015. Tesla plans to expand sales by boosting shipments of its Model S sedan, priced from $71,000 in the U.S., to China and other international markets and adding the Model X electric sport-utility vehicle in early 2015.

“We are adjusting our 2015, 2016, and 2017 volume estimates to 60,000, 100,000, and 129,000 from 51,000, 60,000, and 83,000. And even these estimates may be conservative,” said Lache. “At this point we see an increasingly clear path to 500,000 units of annual production by late this decade.”

According to Lache, Tesla’s production at a Fremont, Calif., plant will top out at around 500,000 units “in the 2019/2020 time frame.”

Lache says the electric vehicle maker’s profits will surge if it succeeds in improving battery technology. Tesla plans to build a new Gigafactory for batteries. It’s considering Reno, Nev., as well as sites in Arizona, California, New Mexico and Texas.

“We expect Tesla to be much more profitable than we previously expected,” added Lache. “Tesla suggested that their mix is likely to be much more richly skewed (Model S/X vs. Model 3) than we had been assuming. Moreover, Tesla is now explicitly targeting battery pack costs of $150/kWh by late 2017 (vs. around $250/kWh today). And they anticipate costs declining below $100/kWh within the next 10-years. Based on discussions with industry experts, we believe that improvements of this magnitude will likely require significant advancements in cathode, anode, and electrolyte technology. But they do not appear to be completely out of reach.”