Investment Firms Stay Bullish On Tesla

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Jan 20, 2015

Tesla (TLSA) is the renowned player in the electric vehicle segment and many were expecting a fabulous speech from the CEO, Elon Musk, on the automotive company’s future prospects in the North American Detroit Auto Show on January 13. But instead the CEO shared his concerns about sluggish sales in China during the Auto Show, sending the stock on a downward slide by 5.66% to $192.69 the following day. But even after the shares danced to the negative territory due to the weakness in company sales highlighted in China, investment firms still maintained their ratings and price targets for the automaker instead of downgrading the stock. Let’s get to the actual story from the investment standpoint.

CEO’s speech had the positive elements as well

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While delivering his speech at Detroit, Elon Musk stated that the demand for Tesla would remain strong across most of its major markets and the best way to deduce to such a conclusion could be the sales of Model S vehicles in 2014, which has crossed over 33,000 vehicles across the globe.

The CEO also hinted that the company was aiming to improve its annual deliveries for the electric upscale sedan by 50% in 2015. He also spoke on the strong sales momentum felt for the crossover Model X and discussed on the production run for Model X for the entire year being already sold out.

His first Detroit visit in two years was all the more relevant as it completely tried to knock down hydrogen fuel-cell technology as a viable alternative to the electric path blazed by Tesla.

Musk has also stated in his master plan to use the Model S to generate sales from the wealthy early adopters to scale up battery production, lowering costs of these high-energy packs. By 2020, he urges to sell hundreds of the sub-$40,000 Model 3 electric cars using cells being manufactured at the Gigafactory at Nevada, under a partnership with Panasonic.

Analysts are taking an optimistic stand

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Several analysts following Tesla’s stock have opined that the weakness in sales seen in China was primarily due to the broader weakness in the country’s economy. Tesla admits that it lacks sufficient EV charging infrastructure in the world’s most popular country, and this is acting as a hindrance to ramping up sales in the country. However, it seems to be improving its partnerships with local companies to expand its network of supercharger stations in China. Thus, the sales might have been hurt in China, but this is only a temporary phase and that’s why analysts are still not weighing the stock to be a sell-end one and are insisting on holding the stock as the future prospects of Tesla seems bright in China and other geographical locations.

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As analysts continue to remain bullish on Tesla, Stifel analyst James Albertine has reiterated the $400 price target and Buy call on the stock, reflecting his confidence on the bright future of Tesla going forward. Also Barclays has suggested equal weight rating and $220 price target on Tesla stock showcasing the optimism among investment banks on Tesla’s stock movement.

It is notable that while the company has generated GAAP profit in the first quarter of 2013 in the two years span, its stock has returned over 480% in the past two years to the investors. According to a Bloomberg poll, 13 analysts have rated the stock as Buy, 7 have rated as Hold and only 2 analysts have recommended the stock as sell.

Last word

Tesla seems to be a promising stock at this juncture, though some of the comments posted by CEO Elon Musk at the Detroit Auto Show might seem as a negative to Tesla’s future growth. Let’s stay tuned and keep watching how the electric maker carves its niche in the coming years in the EV segment with its new offerings which offer promise in the near future.