Tesla Motors Inc (TSLA) Business, Stock Momentum To Continue


Tesla Motors Inc (NASDAQ:TSLA) investors are always busy with positive data points that keep the action going. As an example of the growing interest in Tesla, at the investor meetings in Europe hosted by Barclays, more than 40 investors turned up. Barclay’s analysts Brian A. Johnson, Dan Levy and Steven Hempel expect the business momentum and the stock momentum to continue in the near term.

Tesla margins to be constrained for some time

Giving reasons supporting the thesis of the continuing momentum, analysts believe the international expansion will drive the revenue, and China will serve as the biggest source of demand for Tesla Motors Inc (NASDAQ:TSLA).

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In coming years, the battery costs are expected to come down, which would help in making Gen III vehicle affordable for consumers. Analysts believe that by 2017, the battery cost could be $165 per kWh or lower, which “is close to the point where total powertrain cost could be equal to or lower than luxury ICE OEMs.”

Tesla Motors Inc (NASDAQ:TSLA) expects operating margins in the mid teens, however, the analysts’ estimate of closer to low-mid single digit margins looks viable as the company invests in its growth. Analysts also point that only a few of the investors have realized that for some time, margins will be constrained.

Non-automotive revenue is no game changer

Though the momentum is favoring Tesla, the probabilistic valuation of the analysts “keeps us on the sidelines” of the company despite a significant amount of success for Gen III.

Analysts support the potential for the non-automotive revenue like the grid storage in coming years, but they disagree with those who feel that such revenue is a financial ‘game changer.’  Non-automotive revenue will contribute $2 to EPS in 2020 resulting in incremental $40 on equity valuation, which analysts believe is interesting, but “not a justification of the move we’ve seen in TSLA stock.”

Analysts expect a healthy U.S. demand for vehicles in 2014. Sales of light vehicle are expected to total 16.2 million. Analysts warn investors not to assume rosy growth for the industry as the  expected sales of 16-17 million is more normalized sales level with no clear upside. Increased pressure on the demand for small/mid car and large pickup segments is expected.

Barclay’s analysts have reiterated Equal Weight/Neutral rating on Tesla Motors Inc (NASDAQ:TSLA) with a price target of $220.