Tesla shares could surge past $500 if the company sticks to its own production and sales targets, said Baird analyst Ben Kallo.

This is higher than the $368 price target Kallo has on the stock, which he told CNBC is based on lower expected production and sales numbers than Tesla has forecast. Kallo is one of the most bullish analysts on Tesla.

"We continue to believe a successful Model 3 launch will be an inflection point for stock , and recommend owning shares into the launch," Kallo said in a note sent Wednesday.

Tesla is planning to begin initial Model 3 production in July and to produce the cars at volume in September. Critics, and even those who are relatively bullish on the stock, have doubted that Tesla will be able to meet such ambitious targets and point to times in the company's history when it has fallen short of its own targets.

Kallo's "blue-sky valuation" indicates a potential share price of $566, a roughly 86 percent upside based on the May 23 closing price of $303.86.

Tesla shares were up slightly more than 1 percent early Wednesday afternoon, trading around $307.

Kallo is assuming Tesla will deliver the 1 million vehicles it plans to in 2020, including a combination of not only the models S, 3 and X, but also the Y, a planned crossover SUV which Tesla CEO Elon Musk has said will head to market in 2019 or 2020. It also assumes an average sale price of about $52,000.

The model also assumes Tesla will produce around 15 gigawatt hours of energy storage batteries, sold at an average sale price of $500 per kilowatt hours; and 800 megawatts sold and deployed by Tesla's SolarCity division at a 20 percent gross margin.

From this, Kallo derives a total revenue of about $62.4 billion and total gross margins of 25 percent, or about $15.8 billion. He is not factoring in any potential revenue from a ride-sharing business, semitrailers, or a Tesla bus, which Musk has recently suggested the company may not make anyway, as a ride-sharing program might make the product redundant.

Kallo is also assuming operating expenses of roughly $8.4 billion (around 14 percent of sales), which he believes is feasible as Tesla refines manufacturing efficiency and streamlines production, and an operating margin of roughly 11 percent, slightly below Tesla's long-term target of margins in the mid-teens.

Tesla is expected to have the fastest revenue growth through 2019, on a percent basis, among companies with a market capitalization larger than $30 billion, Kallo said.

"Additionally, we believe the TSLA 2019 Street revenue estimates likely do not factor in TSLA's anticipated growth of reaching ~1M of production by 2020," he said.