Why Tesla's Comeback Will Be Anything but Short-Lived

Tesla Motors (NASDAQ: TSLA  ) zipped toward a comeback on Tuesday, with the stock surging as much as 14% at the time of this writing to trade around $141 a pop. The move comes after a German investigation into Tesla's recent Model S fires found "no manufacturer-related defects," according to the Associated Press. On top of that, the stock also got a shot in the arm from Morgan Stanley (NYSE: MS  ) after the company named Tesla its top stock pick in the U.S. auto industry. Let's take a closer look at whether these catalysts will be enough to carry the stock higher into 2014.

Past and present
The German Federal Motor Transport Authority's seal of approval is a big deal for Tesla after a challenging couple of months for the electric-car maker. Tesla's stock suffered double-digit declines last month, following a trio of Model S fires. However, it's important to point out that in each case, the fire was collision related and not the result of a spontaneous event.

Additionally, the three drivers involved in these separate incidents were each able to safely exit their vehicles without injury thanks to Tesla's onboard safety alert system. In fact, the victims were all quick to defend the safety of the Model S, and one of the drivers even went as far as to say that his Tesla saved his life. Unfortunately, it wasn't enough to stop a sell-off in Tesla's stock -- shares touched a low of $116 as recent as Nov. 26.

Source: Tesla

The recent volatility in the stock is partly because of the U.S. National Highway Traffic Safety Administration's ongoing investigation into these Model S fires. However, the German Transport Authority's decision this week to clear Tesla's name in relation to these fires certainly bodes well for the automaker.

Tesla has also been quick to get ahead of the safety concerns. The EV maker issued a software update to all Model S vehicles last month, which according to Tesla's CEO Elon Musk, improves the air suspension and will result in greater ground clearance at highway speeds. This company knows how to get ahead of a problem.

What Morgan Stanley is saying
It's not surprising, then, that analysts at Morgan Stanley are optimistic about Tesla's future. This stock holds tremendous promise for long-term investors. Adam Jonas of Morgan Stanley now has a price target of $153 on shares of Tesla. When it comes to the recent fires, Jonas says the firm is, in fact, "impressed there have only been three fires since the car has gone on sale over 17 months, 22,000 units and some 130 million miles driven ago." This isn't a new opinion. Rather, it's something Tesla bulls, along with Musk have been saying since news broke of the first Model S fire back in October.

Source: Tesla

Ultimately, investors need to understand that Tesla is a long-term play. I first purchased shares of Tesla around $27 apiece in 2011, and recently added to my position when the stock dipped to $121. Investors with a five- to 10-year time horizon shouldn't be afraid to jump into this name on a pullback, particularly as Tesla gets ready to rollout its first zero-emission crossover vehicle the Model X and make a greater push into international markets.

Put another way, I suspect that the pullbacks in Tesla,  rather than the rallies, will be short-lived. Moreover, I plan to own the stock as long as Musk remains in the driver's seat.

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  • Report this Comment On December 03, 2013, at 2:55 PM, Decoy0527 wrote:

    Sure, sure. You bought at $27 and then again "when it dipped to $121". I doubt if a single reader of this article believes you.

  • Report this Comment On December 03, 2013, at 3:11 PM, smtilles wrote:

    I'm going to wait to get back into the stock AFTER they announce (the inevitable battery protection re-design).

  • Report this Comment On December 03, 2013, at 3:15 PM, Beringer1 wrote:

    Here's the problem w/ Tesla's stock - they're currently valued at over 1/3 of GM..... while their revenue is less than 2% of GM. GM sells more cars in 4 days than Tesla sells all year, so 1/3 of GM's cap is simply too high - period.

    TSLA bounced off of its 200 day moving average and may gap all the way back up to its 50-day moving average around 160, but then it will drop hard again.

    Overvalued stocks don't go all the way back down in a straight line. This is where a little knowledge in technical analysis helps out.

    Until Tesla moves on high volume above its 50-day average, the trend is down - it's just the way it is.

  • Report this Comment On December 03, 2013, at 3:16 PM, Ustauber wrote:

    Thxtsla

  • Report this Comment On December 03, 2013, at 3:43 PM, EquityBull wrote:

    My target on TSLA is $25.

    Reasons:

    1) Would take perfect execution and ramping beyond the supply chain and demand curve to justify today's price even as fair value in 10 years.

    2) ZEV credits will go away. Tack another $5000 on each car

    3) $7500 tax credit will go away. Add that to each car or take away from Tesla's margin if they eat it.

    4) Add together #2 and #3 above and you get either $12,500 added to each Model S or take that much out of the gross profit if Tesla eats it. When does this happen? The moment they hit 200k units sold. A very small number of units indeed for a company with a market cap still over 1/3 GM's

    5) Competition. BMW's new i3 and i8 are hitting Tesla right where it hurts. Other entrants are also coming in this space with great tech and awesome looking cars. You can guarantee that BMW will be taking a chunk out of Tesla's marketshare. The i3 beat them to the punch too for an every man's car.

    6) Valuation again. You just get get close to the market cap no matter how well they execute. Even Musk said they can't get the batteries and now have to invest dollars into a factory

    My advice to Musk? Do the mother of all secondary's while the sheep want to get taken to the slaughter. Dilute the company by issuing 10B or more in new stock in secondary offering. The cash wil provide a hard floor for the stock when the valuation all of a sudden matters to investors and the momentum crows and technical traders move on. In the end you have to have fundamentals and Tesla is overbought by at least 600%

  • Report this Comment On December 03, 2013, at 5:22 PM, raining2009 wrote:

    TSLA will reach over $200 by end of next year with 100% certainty.

    Let's wait and see.

    Poor bears, you must have lose billions of dollars by shorting TSLA from its $20 range. More billions to lose for these shorts in future.

  • Report this Comment On December 04, 2013, at 2:39 PM, Decoy0527 wrote:

    EquityBull provides good reasons for his conclusion that Tesla is overvalued. Some investors compare Tesla with Apple and Google, but I don't see the comparison. Apple and Google went into territory no other company had gone into. If the EV developes into a mass market product, there is no way that Audi, BMW, Toyota, etc., will not step in and poof goes the Tesla 25% operating margin. For the moment, Tesla has a unique product, but they have that market to themselves because it is so small.

  • Report this Comment On December 04, 2013, at 4:24 PM, luckyagain wrote:

    I would guess that some of the increase is due to the unfortunate death in a fiery Porsche accident in California that has crowded out fires in a Tesla. People have been hyper-focused on Tesla cars having fires. The Porsche accident shows that car fires can and do happen all of the time.

  • Report this Comment On December 04, 2013, at 4:24 PM, luckyagain wrote:

    I would guess that some of the increase is due to the unfortunate death in a fiery Porsche accident in California that has crowded out fires in a Tesla. People have been hyper-focused on Tesla cars having fires. The Porsche accident shows that car fires can and do happen all of the time.

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