Tesla (TSLA) last week announced the launch of its $35,000 Model 3 variation, making it the most affordable car in its lineup. While the new model includes a 30% shorter range and standard interior, it helps Tesla fulfill its long-sought mission of being an EV car manufacturer to the masses, not only to high-end buyers. Cost-cutting efforts are already underway to help achieve profitability on the car, including closing its retail stores, which the company announced last week.
Though the announcement spooked many investors, Oppenheimer analyst Colin Rusch is still bullish on TSLA, reiterating his Outperform rating with $437 price target, which implies about 54% upside for the stock (To watch Rusch’s track record, click here)
Wall Street wasn’t too happy with Tesla when the company announced last week it would close its network of retail stores. But Rusch isn’t too concerned by the move, saying that “82% of vehicles [were] purchased online in 2018,” including at least 70% without a test drive. The analyst also points to Tesla closing underperforming stores to begin with, while closing “all stores…will be a gradual process.” So while many think this move will backfire, Rusch believes that this is the way of the future and will have a minimal effect on customers buying Tesla cars.
Investor pessimism hasn’t been limited to the closing of Tesla’s retail network, but also to its new Model 3. While many would have considered this to be a major move for the company — giving it the ability to compete with the likes of Chevy and Nissan on EV price — some are worried what it would do for profitability. But on this, too, Rusch isn’t too concerned. He says that Tesla is working on cost reduction, including “pack design improvements and a new pack automation line that is currently ramping,” while the analysts says Tesla “expects average price for these vehicles to include several options and likely reach $45K-$50K/vehicle with options added.” At $45K-$50K, perhaps Tesla can prove naysayers wrong — but at this price level, the company would fail to attract the majority of America.
Next week, Tesla is also expected to launch its Model Y which Rusch says will share 76% of its components with Model 3 and is expected in the second half of next year. Tesla says this will be its most profitable vehicle, as Rusch says “substantial manufacturing efficiencies are possible for Model Y vs. Model 3 based on manufacturing line design improvements.”
All in all, Wall Street is scratching its head at this electric car giant. TipRanks analysis of 25 analysts shows a consensus Hold rating on TSLA stock, with eight analysts recommending Buy, seven recommending Hold and nine recommending Sell. The price target among these analysts stand at $306.62, which represent a 10% rise from its current value. (Get TipRanks’ free stock analysis report)
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