Tesla Motors (NASDAQ:TSLA) has downshifted from its late September 2013 record high of $194.50 and recently traded for $145. The company's pullback coincided with increased regulatory scrutiny related to three car fires in recent weeks. The negative momentum was halted in early December 2013 when German regulators cleared the company of any manufacturing defects. The NHTSB is still investigating in the U.S but is unlikely to recall the car given they have just issued a 5 star crash safety rating for the Model S earlier in 2013. The company has responded to the incidents by making suspension adjustments to provide greater clearance from ground debris and has agreed to extend its warranty to cover damage related to fires even if the incident is the result of driver error.
Tesla has earned high praise for its Model S which is considered a sporty preview of what management hopes to develop into a lower cost mass produced electric vehicle in the next 3 years as it looks to deliver on its society changing mission. Tesla is also currently developing a supercharger network aimed at quickly replenishing car batteries around major highway stops. This concept is being developed across the U.S. and Europe may end up being a major competitive advantage for the company in the next several years should electric vehicles gain wide acceptance. In the short run, the superchargers alleviate concerns about the travel range of Model S sedans currently around 260 miles per charge.
Earnings and 2014 Price Target
The analysts following Tesla's see 159% earnings growth for 2014 of $1.50 up from 58 cents in 2013, decelerating to 93% growth in 2015 but with a wider range of estimates from $1.95 to $4.25 per share expected. Assuming Tesla can deliver $1.50 in 2014 and guide toward between $3.25-$3.30 for 2015 earnings, we are comfortable setting a price target of $212.50 by the end of 2014 or 65 times our projected 2015 earnings.
Our target represents a 47% increase over current prices and a steep premium over more established car companies with higher production capacity but slower growth. It also considers future innovation that give the company the perception of a tech stock considering the prospect of self-driving cars and an expansive supercharger network. We also firmly believe the market will assign a premium valuation to Tesla in large part because CEO Elon Musk represents a hard to value intangible asset similar to Amazon's chief Jeff Bezos and former Apple CEO Steve Jobs. Musk shares with these executives the ability to leverage new ideas in exciting ways to drive sales. This "it factor" can not be understated.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.