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Tesla's price target raised despite snub from Consumer Reports and standard model delays

Published: 14:10 22 May 2018 BST

Tesla sign
Shares of the electric car company were up in pre-market trading

Tesla Inc’s (NASDAQ:TSLA) ability to turn a profit and meet production goals has been a concern for investors, but an analyst note may be able to quell those fears.

Berenberg analyst Alexander Haissl forecast that the company will be able to meet its 25% gross profit margin forecast, according to a report on the note by CNBC.

READ: Tesla Model 3 fails to earn a Consumer Reports recommendation after brake concerns

"The widespread assumption that Model 3 margins can be directly inferred from Model S/X is inherently and almost totally flawed. Substantial gains from lower labour content, as well as capital and material use efficiencies, should allow Tesla to comfortably achieve a margin above 25% throughout the product cycle," said the analyst in a note.

The analyst reiterated the Buy rating and raised the price target for Tesla shares to US$500 from US$470.

Tesla CEO Elon Musk came to the defense of the Model 3 after Consumer Reports failed to give the sedan a recommendation, citing concerns about the car’s brakes and longer-than-average stopping distance. The magazine Car and Driver’s test of the vehicle also noted a similar issue.

When going from 60 mph to a complete stop, the Model 3 had a 152-foot stopping distance compared with the 127-foot average for luxury compact sedans. It took 25 feet longer to stop than Tesla’s Model X SUV.

Musk tweeted his response to the report, saying that the issue can be fixed with a firmware update. He also noted that Consumer Reports had an early production car and should test a newer model.

 

 

Despite the cult following and fanfare surrounding Tesla, the standard Model 3 was expected to start at the reasonable price of US$35,000. As the features get fancier, the price would go up.

However, the base model isn’t within reach just yet. Musk tweeted that the standard Model 3 won’t ship until about three to six months after Tesla reaches its weekly production goal of 5,000 vehicles.

 

 

Based on the latest results, Tesla has reached about 2,500 cars per week and isn’t expected to reach 5,000 per week until the end of June.

Musk also tweeted about a premium Model 3 with a US$78,000 price tag that can reach up to 155 miles per hour with a range of 310 miles. This upgraded version is more than double the tag price of the standard version, putting the electric vehicle in the price range of luxury vehicles and far from its original goal of being a mass-market car.

Shares of Tesla were up less than 1% to US$286.65 in Tuesday pre-market trading.

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