Tesla Motors Inc (TSLA) “Does The Right Thing” For Long-Term Growth

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August 19, 2014 11:25am NYSE:GEX NYSE:PEZ

tesla motorsTesla Motors Inc (NASDAQ:TSLA) had a great week, rising 5.59 percent from close of trading Friday, August 8, to close of trading Friday, August 15, with much of that increase taking place last Monday after Deutsche Bank raised its rating and target price.


TSLA’s increase substantially beat the market, with the three major indexes rising 0.66, 1.22, and 2.15 percent for the week.

Tesla Extends Warranty on Model S

The big story for the week is that on Friday, CEO Elon Musk announced on the company’s blog that the company increased the Model S drive unit warranty to eight years to match the warranty on the car’s battery pack. There is no limit on mileage or number of owners during the warranty period, and the company is applying the warranty retroactively to all Model S vehicles, not just to new customers.

Musk said that he believes that extending the warranty will have a “moderately negative effect” on short-term earnings because the company will have to increase the reserves that it sets aside for warranty work. However, he said, he is confident that “doing the right thing” now will be good for the company in the long-term.

There is speculation that Musk’s announcement was a response to recent reports from Consumer Reports and Edmunds that found problems with the drive train.

The market’s first reaction to the announcement was favorable, with TSLA opening higher on Monday morning. However, Deutsche Bank responded by retreating just a bit from its dramatic price-target increase a week ago, lowering its current target by nine percentage points and saying it believes the warranty extensions could cost Tesla $7.9 million. The new price target is $310, which is still substantially above the current price, and Deutsche recommends buying now on any weakness associated with the warranty-extension story.

There Are Now 54 Supercharging Stations in Europe

Tesla hit a milestone when it opened its 50th supercharger station in France last week, a little less than a year after the company opened its first European station in Norway. The pace with which the company is opening new stations in Europe is accelerating — it opened four new stations there in the last few days alone.

Credit Suisse Starts Coverage With an Outperform Rating

Last week, Credit Suisse started covering Tesla with a $325 price target and a rating of “Outperform.” The Credit Suisse analysts raved about the company, saying “We believe that Tesla has already proven that EV’s [electric vehicles] are inherently better, although most industry observers, and certainly the general public, don’t know it yet.”

PowerShares DWA Consumer Cyclicals Momentum Portfolio — PEZ

The news this week is positive for the long-term growth of the company, but investing in a volatile stock like TSLA always carries some risk. You can reduce your risk by choosing an ETF such as PEZ that will spread the risk among a basket of companies while still giving you the benefit of having a stake in stocks with considerable potential upside, such as TSLA, which comprises 4 percent of PEZ’s portfolio.

By Michelle Cook, ETF Daily News


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