Shares of electric car maker Tesla Motors rose Tuesday after investment bank Wedbush upgraded the company's shares and raised its target price by 33 percent to $240 per share.
THE SPARK: Wedbush analyst Craig Irwin raised his target price and upgraded Tesla's shares from "Neutral" to "Outperform" after a proprietary survey indicated greater interest in electric cars than it previously expected.
Irwin said 20 percent of the 892 people Wedbush surveyed said they would absolutely consider buying an electric car, and 19 percent said they were willing to pay a premium of $5,000 or more for a 90 percent improvement in fuel economy. Irwin said this indicates a healthy number of mainstream car buyers would be willing to consider a future, lower-priced car from Tesla.
THE BIG PICTURE: Tesla currently makes one vehicle, the $70,000 Model S sedan. It is developing a crossover, the Model X, which is expected to go on sale next year and will likely cost more. Ultimately, the company wants to make a more affordable electric car — known as Generation III — in the $35,000 range, but it hasn't said when that car will go on sale.
Irwin expects the Generation III car to ramp up to full production in 2017, and he estimates Tesla will sell 150,000 Gen III cars. That's 50 percent higher than his previous forecast.
So far, sales of lower-priced electric cars like the $28,800 Nissan Leaf have been anemic, making up less than 1 percent of U.S. sales. But Tesla promises a car with greater range than the Leaf, and the company is also setting up charging stations to help alleviate drivers' concerns about running out of power.
THE ANALYSIS: In addition to its survey, Wedbush raised its 2013 and 2014 delivery forecast for the Model S because of stronger-than-expected sales. Wedbush believes Tesla has produced as many as 7,000 cars during the third quarter, up from 5,150 in the second quarter.
Irwin expects Tesla's shares to move upward as the company releases details about potential new manufacturing plants in Asia and Europe as well as further details on the Model X and the lower-priced, Generation III vehicle.
SHARE ACTION: Tesla shares rose 4 percent to $187.46 in morning trading. They have traded in a 52-week range of $27.02 to $194.50. The 10-year-old company's shares first jumped above $100 in May, after Tesla reported its first quarterly profit.
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