Tesla Motors Inc (NASDAQ:TSLA) gets an Outperform rating reiterated by Wedbush analysts Craig Irwin and Min Xu as the first few days of the Model S debut in Beijing yields promising results.

Tesla Motors

During the first two days (Jan 24 and 25) of Model S sales at Tesla Motors Inc (NASDAQ:TSLA)’s Beijing China Gallery, we understand the store took a couple of hundred orders with a RMB 250,000 (USD $41,000) deposit each.

Customers on Sunday were told they should expect delivery around the August time frame. Associates at the store indicated that the average order price was around RMB 1,000,000 (USD $165,000) with customers selecting a range of options on top of the RMB 734, 000 (USD $121,000) 85 kWh model and RMB 852,500 (USD $141,000) performance model base configuration.

Tesla’s charging system installation

Tesla Motors Inc (NASDAQ:TSLA) is agreeing to send employees to verify the installation of the 220V 16A charging system which will be installed by an approved vendor in the customers’ parking garage/spaces. We understand that Tesla is still in the process of applying for permission to build supercharging stations in Beijing because the supercharging stations will require 80A and need special permission from utility companies.

Customers in Beijing must obtain a license plate before they can place an order because of the license plate lottery system Beijing put in place in 2011 to reduce car congestion and pollution. Beijing allocated 20,000 license plates for EVs but the Model S has not yet been qualified for the EV allocation. This means that potential Model S buyers do not yet leapfrog the lottery system, so those without a plate must wait to get a license plate in the standard lottery that gives plates to around 10% of applicants. When Tesla Motors Inc (NASDAQ:TSLA) receives qualification for the Beijing Renewable Energy Vehicle Plate, likely over the next few months, this should facilitate Model S sales.

Tesla Motors’ valuation

We reiterate our OUTPERFORM rating and $205 price target. Our target is based on 30.0x 2017E EPS of $10.00, discounting back four years using a 10.0% discount rate. We believe valuation based on 2017 estimates is appropriate as that is the first year Gen-III volumes are expected to scale, and view a 30.0x EPS multiple as fair since Tesla Motors Inc (NASDAQ:TSLA) should still be doubling earnings at that point.

We see strong positives in Tesla Motors Inc (NASDAQ:TSLA)’s credible path to longer-term battery cost reduction and the Gen-III vehicle target costs, and what we believe will be a receptive buying public willing to purchase EVs while retaining reasonable expectations for these vehicles. Tesla’s multi-year lead over credible competition suggests the company is well positioned to deliver an aggressive volume ramp.

Risks for Tesla Motors

Risks to the achievement of our price target include the potential for sales volumes below expectations or for profitability on company vehicle sales to miss targets. In the longer-term, we see the most significant risks coming from possible cost escalation in the Gen III vehicle platform and risks of continued push-outs in Panasonic’s advanced battery technologies possibly resulting in slower-than-expected improvement in battery costs and performance.