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A Short Seller's Nightmare...Tesla (TSLA) is the New Porsche-VW - Analyst

May 13, 2013 4:25 PM EDT Send to a Friend
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Price: $230.66 +3.30%

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    11 Buy, 10 Hold, 3 Sell

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    Up: 39 | Down: 30 | New: 13
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Up 177 percent YTD, and 57 percent just over the last three sessions, the move in Tesla Motors, Inc. (NASDAQ: TSLA) has even the most bullish analysts scratching their heads.

Today, analysts at Morgan Stanely, bullish on and off since 2011, put their Overweight rating, estimates and price target on Telsa under review given extreme action in the stock.

The Morgan Stanley team, led by Adam Jonas, explains: "The Tesla debate has moved on from questions of viability to measuring the success and sustainable competitive advantage of the business, triggering a dramatic compression of the stock’s implied risk premium. To thoughtfully weigh the variables, we put our OW rating, ests and target under review."

In what might prove to be heart-attack triggering for short sellers in Telsa, Morgan Stanley compared the current situation in Tesla to the Porsche-VW situation in Oct '08.

"The outlook on key items such as volume and gross margin was also constructive vs. our ests," the analysts said. "At the same time, we believe the share price is dominated by technical factors which have the potential to result in a divergence between price and value in an, as yet, indeterminable way. We encountered a similar disconnect during the Porsche-VW situation in Oct '08."

Some changes the firm was able to make based on the current situation is the earnings model. The firm raised FY Model S volume forecast to 21k units from 18k previously, adopting most of the company’s full year guidance including a 4Q gross margin of 25% before ZEV credits. "We have assumed $171m of ZEV revenue for the full year (incl. the $68m in 1Q). We have adopted new revenue recognition for the 'pseudo-lease' product, with reductions to net income, but no cash flow impact."

Looking at the price level, the firm said a Harley-Davidson (NYSE: HOG) multiple of 10x EV/EBITDA implies more than $1 bilion of EBITDA, the equivalent of selling 65k cars (at $80k rev/unit) at a 15% OP margin, or 140k cars (at $50k) at a 10% OP margin. Using a BMW multiple of 3x EBITDA, the current price implies 215k cars (at $80k) with a 15% OP margin or 470k cars (at $50k) at a 10% margin.

Under a very extreme bullish scenario, if Tesla can achieve a 20% operating margin and deliver 200,000 units, a price target of $307 per share could be justified, according to Morgan Stanley data.

For an analyst ratings summary and ratings history on Tesla Motors click here. For more ratings news on Tesla Motors click here.

Shares of Tesla Motors closed up 14.4 percent Monday to $87.80.




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