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Tesla Motors Inc (TSLA): New Model Launch and Implications of the Emissions Scandal

By Kate George

Tesla Motors Inc (NASDAQ:TSLA) launched the highly anticipated Model X on September 30 and claims it to be the world’s safest SUV. Tesla has also been in the news, just like other auto majors, following Volkswagen’s emission scandal.

On September 30, after the launch of the new SUV, Baird analyst Ben Kallo maintained an Outperform rating on Tesla with a price target of $335, saying his firm continues to remain buyers of the stock.

Kallo believes the new Model X will boost Tesla’s image as well as help the company in expanding its consumer base. He says, “The vehicle’s expected best-in-class safety rating and innovative features should make the Model X one of the industry’s most desirable SUV’s.”

Referring to the specific features of the new vehicle, Kallo said, “The Model X earned official EPA ranges of 257 and 250 miles for the 90D and P85D, respectively, and 0-60mph times of 4.8 seconds and 3.2 seconds, respectively.” He added, “The air filter is 10x larger than a standard car, providing significantly more protection from airborne pathogens and pollution to match the air quality of a hospital operating room.”

The analyst estimates the market for premium luxury SUVs to be 235k to 300k vehicles, based on the number of premium SUVs sold in 2014.

He concluded with optimism by saying, “While the strong growth rates in the SUV market (16.3% CAGR from 2009-2014 in the U.S.) helps our confidence in our Model X sales forecasts, we also believe the X will attract an additional audience from traditional SUV buyers who may be willing to stretch their budgets for a high-performing electric SUV.”

Kallo has rated Tesla 36 times total, earning a 69% success rate recommending the electric car maker and a +28.5% average return per recommendation when measured over a one-year horizon and no benchmark. Overall, he has a 47% success rate recommending stocks and a +6.2% average return per recommendation.

On September 29, Adam Jonas of Morgan Stanley maintained an Overweight on Tesla with a price target of $465. In the context of Volkswagen’s emissions scandal, Jonas highlighted the advantages available to electric car makers like Tesla. He said that these companies don’t have to incur any cost on vehicle emissions regulations; instead “they get paid for selling ZEV credits.”

Specifically referring to Tesla’s advantage, he said that while it’s easy to make an electric car, it’s very hard to replicate Tesla. He concluded, “It’s far harder to make a car with a completely in-house OS designed for machine learning via over-the-air updates to enhance energy storage, performance, mapping and autonomous features as the car is operated in the real world.”

Jonas has rated Tesla a total of 34 times, earning a 71% success rate recommending the stock and a +38.9% average return per recommendation when measured over a one-year horizon and no benchmark. Overall, he has a 56% success rate recommending stocks and a +17.9% average return per recommendation.

According to 17 analysts polled by TipRanks who have rated Tesla within the past three months, 10 are bullish on the electric car maker, 4 are bearish, and 3 remain on the sidelines. The average 12-month price target on the stock is $305.38, marking a 22.94% potential upside from current levels.