Although Tesla Motors Inc. (NASDAQ: TSLA) has faced production shortfalls and cost overruns over the past 18 months, one key analyst believes that the company has made progress in addressing these issues and that it is poised for much stronger performance in the coming quarters. Looking ahead, the independent research firm, Argus, expects Tesla to meet or exceed its production targets and to achieve positive cash flow in the first quarter of 2016.

One of the pivotal highlights going forward is that Tesla has completed construction of its battery production plant, what we know as the Gigafactory, in Nevada. Management believes that will reduce battery pack costs by more than 30%. The lower battery cost will allow Tesla to price its third-generation vehicles at about $35,000, well below the price of current models.

In 2016, Tesla expects to produce a total of 80,000 to 90,000 Model S and Model X vehicles, with about 16,000 in the first quarter. The average vehicle price is expected to increase slightly from 2015, as the more expensive Model X becomes a larger part of the mix. It expects a stronger gross margin in 2016 but looks for overall operating expenses to increase 20%.

As a result, Argus raised Tesla to a Buy rating from Hold and set its price target at $333, implying upside of 40% from the current price level.

The independent research firm lowered its 2016 earnings per share (EPS) estimate to $1.25 from $1.48 based on higher cost expectations, as Tesla continues to invest in new projects. The firm remains above the consensus forecast of $1.20. At the same time, Argus initiated a 2017 EPS estimate of $3.21, more than double its 2016 forecast. Revenue is projected of $11.18 billion, up 31% from the 2016 estimate. These forecasts assume improved production efficiency, modest increases in both gross and operating margins and continued global economic growth. This estimate is above the consensus forecast of $3.04.

Shares of Tesla traded up more than 2% at $238.17 on Monday, with a consensus analyst price target of $236.38 and a 52-week trading range of $141.05 to $286.65.

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