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Is Tesla Motors' (TSLA) Model S the New Model T?

 November 15, 2012 01:08 PM


(By Rich Bieglmeier) Tesla Motors' (TSLA) Model S made history on Tuesday by winning Motor Trend's 2013 Car of the Year. It is the first time in Motor Trend's history that an electric car (EV) received the coveted honor, but will it be enough to jump start sluggish EV sales?

Jesse Toprak from TrueCar.com says, "Until a middle-class family in the middle of the country finds that it makes economic sense to buy one of these cars, you won't see big volume."

Toyota's Vice Chairman Takeshi Uchiyamada echoes Toprak's sentiments, "The current capabilities of electric vehicles do not meet society's needs, whether it may be the distance the cars can run, or the costs, or how it takes a long time to charge. The biggest problem is how automakers bring down costs and how much infrastructure will be in place."

[Related -Tesla, Apple Among Companies Investing Big Bucks in America! So Why Aren't Investors?]

Perhaps, Model S's recognition can get the needle moving in the right direction. CEO Elon Musk told an audience of Tesla owners that President Obama's re-election would be good for the EV industry. "I think that we can expect at least that things will continue as they have. I wouldn't expect it to get any worse for electric vehicles. Hopefully, it will get a little better."

Just how good will it be for TSLA shareholders? Let's examine that question.

Shares have been trending lower in a trading channel since peaking in April at an intra-day high of $39.95. The bottom guardrail appears to be flattening out while the top continues to descend at the same angle. If the pattern continues to develop, it could be seen as a bearish right angle triangle. At the very minimum, it is a consolidation pattern that will lead to a breakout or breakdown.

[Related -Tesla Motors' (TSLA): Forget the Naysayers; Buy the Next Great American Icon Now]

The key levels to watch on the downside are $27 and a small blip of support at $26. If TSLA closes below $26, trouble is on the way, and shareholders could be in touch with the 52-week low of $22.64.

Bulls should keep an eye on $32. If the EV maker's price can put OJ's old number is the rear view mirror, it will bust through the upper guardrail and could be interpreted as a buy signal.

The automobile company's fundamental fortunes are as clear as its chart, in our view. Management spent a lot on marketing and research and development for the award-winning Model S.

For the three months ended September 30, 2012 overall revenues were down as the company discontinued sales of some models in the US. However, electric vehicles sales rose 16% to $50 million for the quarter. Analysts see sales in the range of $400 million for 2012, with a 300% jump to $1.64 billion in 2013.

To meet the street's view, a lot of Model Ss with have to move off Tesla's online showroom. As it stands now, shares trade for 24-times sales (P/S) with TSLA's $3.5 billion market-cap. If analysts are correct, we can imagine a P/S in the range of 4 to 6, which would at least double the stock's current price.

iStock has some reservations with Wall Street's revenue forecast. With a MSRP of $57,000, we don't think the Model S makes economic sense for most middle-class families, even with the most generous state and federal government subsidies, which could total up to $10,000.

Shareholder's fortunes will be riding on the Model S. Motor Trend's Car of the Year honor should bring new shoppers to the floor, and we see evidence of that in our Google Trends checks. Search volume intensity for the Model S is at its all-time high, and running at half the pace of Toyota's Prius.

No doubt, Tesla's management and shareholders would jump for joy if Model S sells half as many Priuses as Toyota sells. For 2012, Prius brand vehicles sales in the United States are expected to reach 220,000. However, with twice the price-tag, at 25%, 500 TSLA shares could be enough to own a Model S of your own.

The stars are lining up for Tesla Motors' (TSLA). The only question, in our view, is whether potential buyers will like the $57,000 price-tag.

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