The hand-wringing over Tesla's ability to generate profits on the Model 3 is overblown, according to Berenberg.

The firm raised its price target for Tesla, predicting the electric car maker will be able to meet its 25 percent gross profit margin forecast for the Model 3. Berenberg also reiterated its buy rating for the stock.

"Model 3 gross margin to positively surprise," analyst Alexander Haissl said in a note to clients Friday. "The widespread assumption that Model 3 margins can be directly inferred from Model S/X is inherently and almost totally flawed. Substantial gains from lower labour content, as well as capital and material use efficiencies, should allow Tesla to comfortably achieve a margin above 25% throughout the product cycle."