Tesla gigafactory: Bullish predictions about send shares flying (+video)

The optimism is based partly on rumors that Tesla will open a battery-producing 'gigafactory.'

By Matthew Shaer, Correspondent / February 25, 2014

A bullish prediction from a Morgan Stanley analyst helped send Tesla shares soaring on Tuesday afternoon.

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Once upon a time there was an electric car company whose stock traded at nearly 1,200 times its earnings under generous accounting rules - it actually lost $74 million in 2013 - with a CEO who could sell igloos in a desert. Tesla Motors is that company and Elon Musk is that CEO. But at this point in the tale, the average investor would be well-advised against jumping on the supercharged bandwagon. After reporting a $16-million adjusted loss for the fourth quarter last week, Tesla shares soared more than 8% Thursday before retreating slightly Friday to close the week at $209.60.

In a note to investors this week, Morgan Stanley's Adam Jonas said he believed that Tesla's share price would hit $320 in twelve months time - a significant jump from an earlier-stated target of $153. Mr. Jonas attributed his optimism to the sales performance of the Model S sedan (deliveries are expected to rise 55 percent in 2014) and the reported construction of a so-called battery-producing 'gigafactory.'

'Tesla says it will team up with partners to build the world's largest Li-ion battery pack facility in the US,' Jonas wrote. 'We reflect the potential for lower battery costs through higher sales volume nearly doubling Tesla's share of the global car market ... by 2028, driving our target increase. If Tesla can become the world's low-cost producer in energy storage, we see significant optionality for Tesla to disrupt adjacent industries.'

In this scenario, Tesla, which has a roughly $30-billion market valuation, would become not just an electric car manufacturer, but its own sprawling green-energy empire.

Not that everyone is entirely sold. In an interview with the Wall Street Journal, John Thompson, CEO at Vilas Capital Management, said he doubted that Tesla would be able to capitalize on the market in the way that analysts such as Jonas expect.

'Tesla is a huge success story and a beautiful car,' Mr. Thompson said, 'but the value of the company at $30 billion is entirely inflated versus what we think their free cash flow totals will be over the next 10 to 20 years. It is ridiculously overpriced and is the poster child of a bubble in my opinion.'

In related news, a recent Consumer Reports survey of American consumers found that Tesla was the fifth-best perceived car brand in the country. The number one slot falls to Toyota. Ford, Honda, and Chevrolet fill out the top five.

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