According to Bank of America, Tesla's "rising stock spiral" creates a repetitive cycle that will further push the automaker to outpace competitors.
Analysts led by John Murphy raised the price bar for Tesla from $500 to $900, which means an 8% increase from Monday morning over the next 12 months. The new target is the highest on Wall Street, surpassing the $880 set by Morgan Stanley just last week. Analysts maintained the automaker's "neutral" rating.
Bank of America cited Tesla's fundraising potential for its more optimistic forecasts. In December, the company announced it would sell up to $5 billion worth of shares to raise additional funds to expand the plant. The proposal stimulates a growth cycle that allows Tesla to more efficiently build up production capacity while maintaining healthy cash reserves, the bank said in a statement.
"It is important to understand that the higher the value of Tesla's shares rises, the cheaper the capital becomes to finance growth, which is then rewarded by investors with a higher share price," the analysts said.
Tesla shares fell 7.2 percent on Monday amid a broader market slump. Shares have remained about 20 percent higher since the start of the year as the automaker's giant 2020 rally continues into the new year.
Analysts warn that the backlash to Tesla's recursive growth could lead to a decline in stocks as quickly as their growth. If the trend of self-fulfillment observed in recent weeks collapses, the tesla capital crane may quickly run out and sales will exceed the acceptable level. That risk helps explain the recent volatility in Tesla's stock, the team said.
The bank now expects the winning bull series to continue. Tesla's ability to actively build new plants to meet high demand will increase supply volumes and improve its ability to raise money through stock offerings. While manufacturing problems and lack of cash haunted the company just a few years ago, Tesla's rapid valuation removes those concerns and strengthens the automaker's position as the world's dominant electric car maker, according to Bank of America.
"Simply put, Tesla is a revolutionary new company that may or may not be dominant in the long run, but it doesn't matter if it can continue to fund excessive growth with little or no capital to expand capacity," the team added.
Tesla was trading at $847.06 as of 10:25 a.m. ET on Monday. The company has 21 "buy" ratings, 45 "hold" ratings and 20 "sell" ratings from analysts.