Tesla Motors, Inc. Stock This Week: Titanium Armor and Concerned Analysts

A Tesla Motors (NASDAQ: TSLA  ) stock sell-off continued this week, with the stock falling 7% -- down 13% for the month of March. The stock closed on Friday at $212.37. Notably, the decline follows a 12-month gain of about 500%. The week's decline for the electric automotive manufacturer likely stemmed from two reports from analysts during the week who voiced concern about Tesla's valuation.

Tesla Model S. Photo by Levi Sim, used with permission

But there was good news during the week, too. The stock rebounded slightly on Friday when the National Highway Traffic Safety Administration closed its investigation into Tesla's battery fires and Tesla CEO Elon Musk took to Medium describing a new armor on the bottom of the battery packs.

Valuation matters
Tesla's business is firing on all cylinders. But price matters. With such a robust outlook for Tesla priced into the stock, investors have good reason to be concerned with valuation.

Two analysts are also concerned.

UBS analyst Colin Langan initiated coverage on Tesla stock this week with a neutral rating and a $230 price target. "[I]nvestors should appreciate that the downside this early in its life is material," he warned (via Forbes). While he acknowledged Tesla's disruptive business model looks poised for success, a rosy future is already priced in, he explains. And worst-case scenarios should be considered, too he advised. "The failure of a current or future product could quickly unravel all the progress."

Deutsche Bank analyst Rod Lache, echoed his sentiment. Even acknowledging that reaching 500,000 vehicles per year by 2020 isn't particularly lofty, a wildly bullish valuation forces him to rate the stock a neutral with a $220 price target.

It may, indeed, be wise for investors wait for a larger pullback before they buy into Tesla stock.

The world's safest car just got safer
The most exciting Tesla news from the week came Thursday night when Musk announced in a blog post that Tesla is now adding titanium underbody shields and aluminum deflector plates to the underbody of the Model S as part of a new three-layered system to protect the battery pack.

The Tesla Model S battery pack is on the floor of the vehicle. Image source: Tesla Motors.

The move was served as a driver for NHTSA to end its investigation into three battery fires that resulted from high-speed accidents. Though NHTSA was likely going to call off the investigation anyway since it said it found "no defect trend," the underbody carriage update was a smart move by Tesla.

"Tesla's revision of vehicle ride height and addition of increased underbody protection should reduce both the frequency of underbody strikes and the resultant fire risk," NHTSA said.

NHTSA has five-star safety rating for Tesla's Model S in every category.

The investor takeaway
While Tesla shareholders should have incremental confidence in Tesla's risk profile with a safer battery pack that will help prevent recalls, investors should heed analysts' concerns about valuation. Don't expect to buy this disruptive company at these levels without taking on meaningful downside risk.

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  • Report this Comment On March 31, 2014, at 9:24 PM, PTYGRINGO wrote:

    The financial literacy task force does not know their ass from a hole in the ground.The SEC did not find and problem with The Bernie Madoff SCAM Company.Do not our tax dollars pay the salary of the SEC members.After thein major oversite they all should be fired;all of them so future employees will learn to take their job serious.How about AIG and Morgan Stanley-no smack on the hands??? I think all of us hard working

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