Investors sold off shares of Tesla Motors (NASDAQ:TSLA) on Tuesday, sending the stock down nearly 9% to around $116 a share at the time of this writing. That's a steep decline from where the electric-car maker's stock was trading earlier this week at $133. The sell-off comes on the heels of an analyst note from Goldman Sachs, in which analyst Patrick Archambault pegs Tesla's fair value at an averaged price of $84 per share.
However, before you panic, let's take a closer look at why this is of little significance to long-term investors.
Behind the sell-off
Shares of Tesla have climbed as much as 275% on the year. Therefore, it was only a matter of time until investors took some gains off the table. Tuesday's move, however, is compliments of Archambault's three-tiered approach to valuing the stock. The analyst laid out his bearish, bullish, and baseline scenarios for the stock, taking the average between them to arrive at his $84 target price.
As one of the best-performing stocks so far this year, there's no doubt that Tesla has been trading at a lofty valuation relative to earnings. However, if you're currently invested in Tesla, you should be prepared to be in this name for the long haul. That's because we're still in the early stages of a very promising growth story.
The company continues to ramp up production on its acclaimed Model S car, and has plans to release its first all-electric SUV, the Model X, next year. Last week, Tesla CEO Elon Musk shared with Bloomberg his confidence that the EV maker could increase its production pace to 800 vehicles a week in 2014, twice as good as the company's initial goal of 400 a week. This is a big piece of the puzzle for Tesla.
In Goldman's report today the analyst's bull case had Tesla selling 200,000 vehicles and taking 3.5% global market share at best. However, Musk sees a very different Tesla. As the company rolls out new and increasingly more affordable electric cars, Musk expects Tesla's California-based plant to produce as many as 500,000 vehicles a year, according to Bloomberg. Moreover, if there's one thing the Tesla CEO is good at, it's living up to his promises.
This is just the beginning for Tesla, which is why shareholders with a time horizon of three to five years should stay in this name despite the recent volatility in the stock. However, if you'd rather invest in a more established automaker, a new report from the Fool's top analysts uncovers two fresh opportunities for investors.
Fool contributor Tamara Rutter owns shares of Tesla Motors. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.