Tesla Motors Inc (NASDAQ:TSLA)’s planned gigafactory may be bringing more and more risks along with it, and as a result, Wedbush analysts have reduced their price target on the automaker’s stock. They have maintained their Outperform rating, however.
In a research note dated March 27,2014, analysts Craig Irwin and Min Xu have reduced their price target from $295 to $275 a share. But in spite of the cut, their target still suggests meaningful upside to Tesla Motors Inc (NASDAQ:TSLA).
One of the main reasons for the price target is because of comments made by Panasonic Corporation (ADR) (OTCMKTS:PCRFY) (TYO:6752) management. The other reason they cite is indications from within Tesla Motors Inc (NASDAQ:TSLA)’s supply chain which suggest that asking prices for materials are on the rise.
Panasonic updates on Tesla gigfactory
Panasonic Corporation (ADR) (OTCMKTS:PCRFY) (TYO:6752) President Kazuhiro Tsuga said they have not yet officially committed to taking part in Tesla Motors Inc (NASDAQ:TSLA)’s gigafactory. The executive cited concerns that it would increase the company’s investment risks.
The Wedbush team is now concerned that Panasonic may not end up partnering with Tesla Motors Inc (NASDAQ:TSLA) on the facility. They do note that Tesla says that the batteries made by Panasonic Corporation (ADR) (OTCMKTS:PCRFY) (TYO:6752) are its own technology and formulation. However, Panasonic is generally seen as building the highest quality lithium ion batteries.
As a result, if Panasonic was a joint venture partner with Tesla on the gigafactory, then the automaker would more easily have access to the battery maker’s supply chain. They believe that if Panasonic does partner with Tesla on the facility, then the risks would be reduced.
Tesla’s material prices on the rise
The analysts said they’ve heard from a number of sources that asking prices for battery materials are already moving higher because of expectations that supply will become tight in the future as Tesla Motors Inc (NASDAQ:TSLA) ramps up its 35 GWh gigafactory. In the world of batteries, the materials supply chain ends up becoming the cost of the manufacturer. They do believe that partner loyalties will stay strong, however.
Strong positives in Tesla remain
Their price target remains quite high in spite of the increased risks they see. This is because they say those risks are balanced by the improved visibility the gigafactory will likely bring for involved parties.
The Wedbush team also sees plenty of positives ahead in Tesla Motors Inc (NASDAQ:TSLA)’s plans to become a mass market automaker. They note that the company is working toward reducing battery costs, which will lower the price of the Generation III vehicle. They believe the general public will be very receptive to electric vehicles “while retaining reasonable expectations” for them. The analysts see Tesla’s “multi-year lead over credible competition” as indicating that it is well-positioned to aggressively ramp up volume.