Tesla's Morgan Stanley Saga
Alexander is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As investors we should analyze our investments as a whole. This means examining balance sheets, current earnings, future earnings, and yes, analyst price targets. Typically, these are given as an estimate for the share price twelve months in the future and based largely around the analyst's own estimates.
Of course, price targets vary widely from analyst to analyst. But since the Tesla Motors (NASDAQ: TSLA) initial public offering, Morgan Stanley (NYSE: MS) has posted widely different price targets, all from the financial firm itself.
The Bulls Are In!
In March of 2011 Morgan Stanley decided Tesla was the stock to have. Citing their opinion that the EV market was underestimated, the firm set a price target of $70 per share. That would mean a gain of nearly 150% from the then share price in the mid-$20 range. However, Tesla shares did not remain at that price level for long. Shares surged over 20% on the day of the Morgan Stanley report.
Not only did Morgan Stanley give an amazingly high price target, but they released it within a bullish report on Tesla that stretched 50 pages long. Needless to say, this price target came with an overweight rating, helping to grow bullish sentiment even more. The report labeled Tesla as America's fourth automaker and discussed the automaker's involvement with Toyota Motors (NYSE: TM). Glowing remarks were based around the purchase of $50 million in Tesla shares by Toyota as well as the use of Toyota's former Fremont facility. Tesla bulls rejoiced as a major financial firm had confirmed their sentiments of the automaker being the Apple of cars.
The Bears Are (Kind Of) In!
But Morgan Stanley's love affair with Tesla did not last forever. By December, the firm reversed its performance stance, moving the automaker from overweight to underweight. Long term shareholders who benefited from the upgrade in March lost around 10% of their investment that day as shares were [ushed down near the $30 mark.
Surprisingly, the price target was only lowered to $44 per share, still nearly a 50% gain from the closing price of that day. Yet Morgan Stanley still expected the automaker to underperform the broader market, putting a degree of conflicting information in the firm's own report.
And the Bulls Are Back!
In September 2012, Morgan Stanley once again changed its stance on Tesla shares. The firm returned the shares to overweight and increased the price target to $50 per share. Although still not as high as the $70 price target, the new report pushed shares up 6%.
This was certainly a welcomed upgrade, coming at a decisive time for Tesla. The automaker was, and currently is, ramping up production on the Model S, and the success of both sales and production will prove critical to Tesla's future. With over 10,000 reservations recorded, production becomes the point of focus, and the Morgan Stanley upgrade shows that this financial firm believes Tesla can successfully increase production to meet its targets.
Where Are We Now?
Nearly two years and three analyst decisions by the same firm later, Tesla remains a company with a great potential for success. While challenges and risks do remain, the high and growing demand for the Model S has shown the viability of a mass produced electric car. Many buyers choose a Model S for performance characteristics, not environmental ones, setting up a more diverse demographic as Tesla expands its product line.
In the next few years look for Tesla to continue building out its range of offerings with the Model X and a sedan in the $30,000 range to compete with cars such as the BMW 3 Series. The first profits are expected for the year 2013, and this should provide a sign of financial return for many skeptical investors. While Tesla's success is by no means guaranteed, the automaker certainly offers an amazing potential for growth, and for this reason I am long Tesla shares.
TulipSpeculator1 owns shares of Tesla Motors. The Motley Fool owns shares of Tesla Motors. Motley Fool newsletter services recommend Tesla Motors . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!