Tesla Motors Inc (TSLA) Stock Rising Again, But Is It Sustainable?

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Tesla Motors Inc (NASDAQ:TSLA) stock today gained 6.3 percent to $93.32 in futures trading following up on the 14.4 percent jump on Monday. The up-trend in the electric-car maker’s stock has been continuing since the first week of the month, when the company announced its first profitable quarter.

Tesla Motors Inc (TSLA) Stock Rising Again, But Is It Sustainable?

On Monday, shares closed at $87.80, gaining 57 percent since Thursday. The stocks are up 146 percent since April.

What drove Tesla Motors’ share price?

Positive reviews of the company’s latest Model S sedan, on Friday from Consumer Reports magazine, are one of the many reasons for the recent jump in the prices. Consumer reports reviews; one of the most trusted reviews in the industry, gave 99 out of 100 to Model S and termed it as the best car tested since 2007.

Also, investors seem to like the earnings report card of the Calif.based company. For the first quarter, the electric car company posted a profit of $11 million, much against the belief that the plug-in cars business model is tainted. What was even more impressive is that in an industry where 10 percent is considered outstanding, Tesla Motors Inc (NASDAQ:TSLA) reported a gross margin of 17 percent. The CEO believes that gross margin may still rise higher to about 25 percent by the end of the year. For the first quarter, Ford Motor Company (NYSE:F) reported a gross margin of 11 percent in North America.

For the first three months, Tesla Motors Inc (NASDAQ:TSLA) sold 4,900 electric cars versus 4,244 Chevrolet Volts and 3,539 Nissan Leafs. For the full year, the electric car company expects to sell about 21,000 cars, 1000 more from the earlier guidance.

Road ahead

Maintaining such run will take some real efforts from the car maker. As of now, most of the revenues depend on its only car, the Model S sedan. The sedan ranges from $70,000 before tax credits to more than $100,000 and can travel up to 300 miles on a charge, off course depending on the size of the battery.

Already there are questions raised on the premium pricing of the model and whether or not the company can keep its order books full.

Elon Musk, the CEO, understands the affordability issue, and plans to make the car more affordable, but that is still some three or four years away.

BAML Take on Tesla Motors

A report from Bank of America Merrill Lynch believes that Tesla Motors Inc (NASDAQ:TSLA) is a “momentum driven stock” and expects the price to return back to the levels consistent with its target price of $37. The report says that the current share price does not reflect the sales volume, and the company need to sell 2 to 3 times our “optimistic 2013 volume in 2014” to justify the current price levels.

On the gross margins, report says that the company can achieve 25 percent targeted margin, but it will be tough. For the first quarter, excluding Zero Emission & other regulatory credits, gross margin was about 2.4 percent.

Other big car makers like Ford Motor Company (NYSE:F), General Motors Company (NYSE:GM), and other OEM’s are in a better position to take advantage of any increase in demand for electric cars and they could also acquire Tesla if the need so arises, says the report.

But with Tesla Motors Inc (NASDAQ:TSLA) trading at such high levels, the “option appears far less likely.”

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