Tesla Motors Inc (NASDAQ:TSLA) stock has been among the favorites for some weeks now, Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) in a research report has maintained hold rating on Tesla and at the same time has raised the price target to $50 from $35.
Following are the reasons:
- Those traders who have shorted the stock will cover it, which could surge the price of stock for some time.
- According to Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) the fundamental valuation techniques are not applied at this time and presently, buy side estimates an exponential increase in the volume.
- With improvement in Europe/Asian markets in second half of 2013 and first half of 2014, the volume is expected to increase in order to overcome the potential margin weakness.
Earnings report analysis
Tesla Motors Inc (NASDAQ:TSLA) earned total revenue and gross profit from regulatory credits of around $85 million. The $17.1 million benefit was from “other regulatory credits” in the first quarter. The ZEV Credit benefit came in at $67.9 million in the first quarter as per shareholder letter. Along with margin improvement plans associated to manufacturing efficiency, automation, design improvements, logistics, and supplied component cost reductions, favorable movements in JPY / USD will also prove to be a benefit for the company.
The warranty cost for the company came in at $14.2 million in the first quarter, and the company spent $3.1 million on warranty claims. The company has accrued $2,900 per model S delivered in the Quarter. The cash payment made by the company is somewhat heavy. If Tesla Motors Inc (NASDAQ:TSLA) spends at the current level, then on its 16-quarter warranty, the quarterly spending will be $7,500 per unit. The spending at this level is associated with the initial quality issues. The majority of Quality issues have been solved, and the cash payment is expected to decline significantly in the near term.
What lies ahead?
In its report Deutsche bank mentioned that it is not easy to value Tesla on the usual valuation metrics used for Automobile companies. The report further said that Tesla Motors Inc (NASDAQ:TSLA) is an auto company and will be valued as one. The Model S automobile of Tesla is a distinctive product and the price of this vehicle will remain high compared to internal combustion vehicles for some time. However, Tesla Motors Inc (NASDAQ:TSLA) enjoys a competitive edge over battery pack technology, which will diminish overtime. The company will require making massive investments for bringing out new automobiles.
It would not be suitable to compare Tesla Motors Inc (NASDAQ:TSLA) with any other Auto company at present, but Porsche can be seen as a good medium term competitor. Porsche at presents sells around 125k units per year and has gross margin at 40 percent.
According to Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) there are no negative factors in the coming 12 months, which will affect the positive sentiment of investors over the company.