Weekly Auto Notes: Tesla Shares Up On New Lease Program

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Shares of Tesla Motors (NYSE:TSLA) gained by as much as 7% following the announcement of a new leasing program for its electric cars. [1] Currently, Tesla offers a leasing package that allows consumers to purchase a Tesla Model S, which sells at a base price of $71,000, for installments between $800 and $1,300 a month, depending on options, following an initial down payment of $6,500. Tesla’s Elon Musk announced a new agreement with U.S. Bank which could allow consumers to purchase the Model S on a lease that could be 25% cheaper than the lease program currently offered by the company. The option will allow consumers to return the vehicle in case they do not like it, while also getting their lease obligation waived off. Considering the fact that the cost of ownership of a Tesla Model S is already lower than most cars in its class, a cheaper lease program should make the car even more attractive to potential buyers.

Tesla was also in the news during the week for doubts over whether the company would be able to meet its target of 35,000 vehicles for the year. Last week, a Barclays analyst said that Tesla would not meet its guidance of 13,000 vehicle deliveries for the fourth quarter, thus failing to meet the 35,000 target for the year. [2] In response, Elon Musk took to Twitter to announce that sales of the Model S sedan were up by 65% in North America and had reached a “record high” worldwide. [3] Tesla will announce its earnings on November 5.

Currently, our valuation of $150 (market cap of $18.5 billion) for the company is about 40% below the current market price of $226 (market cap of $27.9 billion). We expect Tesla to report revenue of around $4 billion and operating income of $700 million for calendar year 2014. We forecast non-GAAP diluted EPS of $0.79, which is lower than the market consensus of $1.01 (Financial Times).

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Notes:
  1. Tesla Announces a New Leasing Package for Its Electric Cars, NY Times , October 2014 []
  2. Tesla stock spikes on Musk promises, lease offer, LA Times, October 2014 []
  3. Elon Musk’s Tweet, twitter.com, October 2014 []