Stifel Remains Positive on Tesla (TSLA) Following Musk Comments; Other Automakers Also Seeing Deceleration in China

Stifel comments on Tesla Motors (Nasdaq: TSLA) following a presentation by CEO Elon Musk at the 2015 Automotive News World Congress in Detroit, Michigan, and overall impressions from Tesla's display at the North American International Auto Show.

Analyst James Albertine believes Tesla is arguably the largest disruptor that the auto industry has seen in about 50 years. Its a segment which requires heavy capital investment and payback periods can take several business ycles.

Albertine said, we continue to emphasize the importance of demand for TSLA products, which by and large, in TSLA core markets, remains on track relative to our current modeled estimates, based on TSLA comments.

On slumping China sales: we temper our concerns given (a) the early stages of TSLA's foray into that market, and (b) noting that the vast majority of auto manufacturers and suppliers have recently highlighted deceleration in China.

On Tesla's profitability outlook: TSLA's cost structure is, rightfully so, levered to investments in growth; both as it relates to the Model 3 (TSLA's attempt to create a more affordably priced mass-market vehicle), and the construction of a world's first, the Gigafactory (TSLA's attempt to boost volume, lower the cost of electric battery cell production). Taken together, comments related to GAAP profitability are not as earth-shattering as they are being portrayed in the media, in our view. TSLA has identified demand for lower-priced EVs and management is investing in profitably filling that demand, but given the long-term investment horizon and capital requirements of the auto business, returns cannot and should not be factored into expectations until, at the very least, the vehicle has been produced and delivered. This is the same as with any auto maker, granted TSLA is building only its third model when other OEMs are focused on models 15-20 (and in many cases continuing to financially support models that have failed to gain customer acceptance).

Conclusion: In short, while we plan to provide a further update post management commentary this afternoon, we believe the initial reaction to CEO comments yesterday is overdone and fails to recognize TSLA's value to the global auto industry, and global auto consumer, which we continue to believe are significant.

Albertine has Tesla at Buy with a price target of $400.

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

Tesla Motors closed at $204.25 yesterday.

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