'You have to move on': Tesla’s biggest bull explains what the rest of Wall Street is missing — and why Elon Musk sets out to fail on purpose

  • Pierre Ferragu of New Street Research has a $US530 price target for Tesla– nearly 70% higher than the rest of Wall Street.
  • The veteran analyst recently spoke to Business Insider about why he’s so bullish on Tesla, and what others who cover the company are missing.
  • He says Elon Musk sets impossible goals on purpose, and that actually meeting them isn’t the important part of Tesla’s business.
  • Follow Tesla’s stock price in real-time.

Wall Street’s biggest research names – from Goldman Sachs and UBS – are worried Tesla will need to raise cash this year in order to stay afloat.

But New Street Research analyst Pierre Ferragu disagrees. His price target of $US530 for shares of Tesla – 68% above Wall Street’s $US314 consensus – makes him the most bullish analyst on Wall Street, a title he happily touts.

“There is no emergency need for a capital raise at Tesla today,” Ferragu told Business Insider in an interview. “The company is today on a very, very thin line in terms of financing. The balance sheet doesn’t look good and the cash burn of the last four quarters has been enormous – but they are at a turning point.

“I think they’re going to more than halve the cash burn in Q2 and they are indeed going to stop burning cash toward the end of this year, which means that they don’t need to raise on that kind of time horizon.”

Ferragu is happy to go against the grain. The 43-year-old in April joined New Street Research from Alliance Bernstein, where he spent more than a decade doing equity research in the firm’s London office. New Street, an independent research firm without a traditional brokerage arm attached to its research department, allows him to cover a variety of companies in disparate sectors, something he says is virtually unheard of at Wall Street banks.

And when it comes to Tesla, the rest of Wall Street is putting too much focus on the company’s ability to ramp its Model 3 production to its stated goals.

“You have this Army of analysts today who are speculating about whether Tesla producing 500 or 700 cars per day today, but honestly who cares?,” Ferragu said. “The production rate is increasing. If they are at 500, they’re going to get to 10,000 [per week] maybe at the end of next year. And if they are at 700, maybe are going to get to 10,000 in the middle of next year. But on the enterprise value Tesla, whether they are at 10,000 [per week] and now or in six months, what is the difference on valuation? It’s nothing.”

The speed at which Tesla is able to reach its production goal isn’t important to Ferragu. “You have to move on and look at what matters to valuation,” he said. Those include Tesla’s competitive advantage, how much market share Tesla can steal from other traditional automakers, and how those companies respond.

“For all these questions there is no research,” he says. “That’s where I can make a difference.”

When it comes to actually meeting his stated goals, there’s one simple anecdote that sums of Elon Musk’s thinking – and why the chief executive purposefully sets goals that he likely won’t be able to attain. According to Ferragu, Musk says that success only comes when there are people betting against you. It’s a notion that makes sense given Musk’s recent warnings to investors with short positions against Tesla’s stock.

So he tells the company and he tells the public: ‘We are going to ramp Model 3 in nine months,'” Ferragu said. “He actually knows that the probability they fail is very high, but he wants everybody to shoot for that.”

That becomes a problem when analysts try to take his words at face value.

“Sell-side analysts who don’t know the guy, who don’t understand the technology, who don’t understand what it is like to work at Tesla – they translate his ‘shot for the moon’ as ‘they missed it,'” Ferragu said. “Instead of translating it as ‘they started,’ they translate that into ‘they failed,’ which is a massive mistake. It’s just a wrong way of translating Elon Musk.”

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