Tesla (TSLA) surged Tuesday after Credit Suisse upgraded the automaker, saying the COVID-19 disruption gives it a competitive edge in the transition to electric vehicles.
Shares of the automaker gained as much as 14% Tuesday. Credit Suisse analyst Dan Levy on Tuesday upgraded Tesla to “neutral” from “underperform.” He maintained his $580 price target for the automaker.
Tesla “competitively has more edge in the transition to EV as coronavirus disruption will make it more difficult for legacy automakers to balance the long-term shift to EV in the face of near-term cycle disruption,” Levy wrote in a note Tuesday.
The previous “underperform” rating for Tesla centered on competition the company faced from other OEMs, Levy explained. But, in the wake of the coronavirus pandemic, Levy now says that Tesla has a leg up over other automakers.
“In a coronavirus world, with the focus almost exclusively on the ‘near' for the auto industry, and combined with reduced liquidity and increased net debt levels, it raises question on how legacy players can maintain ample commitment to the ‘far',” Levy wrote, adding that he's specifically speaking about electrification.
On the flip side, Tesla is “solely focused on electrification,” according to Levy, and doesn't have the dilemma of balancing a transition to electric vehicles like other traditional car companies.
“While coronavirus is expected to drive some near-term demand impact to Tesla, we nevertheless don't see much long-term impact to the story of EV penetration – where Tesla currently leads,” Levy said.
In addition, Tesla is a leader in other areas that Levy said he believes will define the future of car making, such as software and electrification. On the software side, Levy also sees Tesla as having an edge over the competition on batteries.
Tesla is also in better standing now to weather the crisis, according to Levy.
“Were the coronavirus upheaval to have occurred a year ago, when Tesla was financially in a more precarious state, there would be much greater uncertainty for Tesla,” he said. “However, Tesla is now in a better position from a liquidity standpoint – likely providing ample cushion to get through the upheaval.”
The company has about $11.6 billion of total liquidity after its equity raise in February, and $8.6 billion in cash, according to Credit Suisse. That should be ample liquidity to get it through the crisis, even with the cash burn of about $300 million a week associated with the shuttering of its Fremont factory.
“Moreover, the relative strength in Tesla stock price arguably provides it with a cost of capital advantage vs. others,” Levy said.
Tesla has gained roughly 56% year-to-date through Monday's close.