Bank of America significantly raised Tesla Inc‘s (NASDAQ:TSLA) 12-month price target from $350 to $400, maintaining a Buy rating as the investment bank bets on the company’s ability to balance strong near-term growth in electric vehicles with bold long-term plays in autonomous driving and robotics.
In a note to clients Thursday, analyst John Murphy highlighted his optimism following a recent visit to Tesla's Gigafactory in Austin, Texas.
"The trip gave us increased confidence that Tesla is well-positioned to grow in 2025+," Murphy said, citing discussions with investor relations, a factory tour, and test drives that showcased Tesla's technological advancements.
FSD Advances Bolster Robotaxi Prospects
Tesla's Full Self-Driving (FSD) technology stood out during the test drive at Gigafactory Austin, with vehicles demonstrating significant improvements.
Murphy highlighted how Tesla's Cybertruck and Model Y seamlessly navigated construction zones and managed a challenging left turn against traffic.
"Tesla noted that soon its FSD will require an intervention only once every 10,000 miles," Murphy said, emphasizing that the company's autonomous technology is nearing the safety level required to launch a monitored robotaxi service.
For comparison, Alphabet Inc.‘s (NASDAQ:GOOG) (NASDAQ:GOOGL) Waymo initiated its robotaxi operations after achieving one intervention every 17,000 miles, “a milestone TSLA believes it could achieve shortly with its growing AI compute.”
Murphy highlighted Tesla's growing AI infrastructure, which includes 50,000 active Nvidia Corp. (NASDAQ:NVDA) H100 chips as of October. This positions the company to potentially launch its robotaxi service by 2025.
Optimus: Tesla's Robot Revolution
Tesla's humanoid robot, Optimus, is already making strides in automation.
Though Optimus currently accounts for just a single-digit percentage of Tesla's AI compute power, Murphy expects this to increase as the robotaxi program stabilizes, accelerating Optimus’ development.
"With more robots in use, training will accelerate," he said, adding that mass production in 2026 and beyond could drive down costs and open new growth avenues for Tesla.
Murphy also indicated Tesla may consider raising capital to support its investments in Optimus, robotaxis, and artificial intelligence.
"At its current valuation, Tesla could raise $50 billion+ through an equity raise at a relatively modest 4-5% dilution to shareholders," Murphy stated.
“TSLA has historically been able to raise capital at an extremely low cost compared to its peers,” he added.
Lower-Cost EV And Expanding TAM
Tesla plans to launch a lower-cost EV in the first half of 2025, targeting a price point below $30,000, which includes the $7,500 federal EV tax credit.
Murphy said this vehicle could expand Tesla's total addressable market (TAM), with cost savings achieved through “a number of areas such as de-contenting, making the motor more efficient and thereby enabling a smaller battery, and changing the interior.”
Market Reactions
Shares of Tesla rose by 3.8% to $371.52 on Thursday, reaching levels last seen in early April 2022, pushing year-to-date gains to 50%.
The all-time highs of $414 reached in November 2021 are now approximately 10% above current prices.
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Image created using artificial intelligence via Midjourney.
