Goldman unexpectedly weighed in bearishly on stocks, tactically downgrading global equities to Neutral over the next 12 months "on growth and valuation concerns". It added that "until we see sustained earnings growth, equities do not look attractive. This especially on a risk-adjusted basis" in what some see as a potential upward inflection point in the market now that the biggest taxpayer backed hedge fund is buying what its clients have to sell. Goldman decided to unveil another surprise this time upgrading one of the biggest momentum/growth stocks, Tesla (TSLA), to a buy with a $250 price target.

From Goldman:

Putting in our reservation for the Model 3; upgrading TSLA to Buy

Source of opportunity

We upgrade shares of Tesla to Buy from Neutral with 22% upside to our 6-month price target of $250. While we believe the volume targets are ambitious, Street and investor expectations seem more grounded and following a 23% decline in the share price post the Model 3 unveil, we do not believe Tesla shares are fully capturing the company’s disruptive potential. This combined with a more stable macro backdrop (relative to January/February) and increased confidence in Model 3 demand (from orders and our competitive benchmarking) drives attractive risk/reward. The company has publicly stated it might look to raise capital, and our detailed capex analysis points to capital needs of $1bn.

Catalyst

There are admittedly fewer visible catalysts than before, with the next Model 3 update potentially not until next year. We think the introduction of a mobility service is a possibility, though timing is uncertain as management comments on this have been limited. Ultimately we think the biggest fundamental near-term catalyst will be the ramp of the Model X. While progress appears to have been limited since the 1Q16 update (based on the cadence of April/May deliveries), expectations are low in our view with many on the Sell/Buy sides expecting a cut to Tesla’s 80-90k delivery target. While we acknowledge this risk we view it as discounted and think any positive news on X production would strongly support the shares.

Valuation

Our unchanged 6-month price target of $250 is derived from five probability weighted automotive scenarios plus stationary storage optionality, all of which embed a 20% cost of capital.

Among its "fundamental" catalysts are calls by Goldman for Elon as Steve Jobs, as Henry Ford, or as the Maytag repairman, even though the company admits its base case without invoking "Iron Man", is only $125 with a $61 downside case.

As part of its upside justification Goldman says the stock has typically seen support below $200.

Curiously, Goldman compares the potential growth rate for Tesla as comparable to that of auto industry monopolist Ford Model T:

It does however, admit that Tesla will see substantial competition from comparable offerings from Audi and other carmakers.

The stock is 3% higher on the upgrade in the premarket. It remains to be seen if Goldman is offloading its existing Tesla exposure.