Baird Raises Tesla Target Price

TeslaReady to vroom?

It’s been a busy week for high-end electric-car maker Tesla Motors (TSLA). First there was the unflattering review in the New York Times which suggested the electric batteries aren’t reliable, then the very strong response from CEO Elon Musk. (Believe me, calling a piece of journalism “fake” is as aggressive as you can be.)

The commotion contributed to the stock dropping both Monday and Tuesday — even with a 1.5% rise today, it’s still off 2% this week, closing at $38.45.

But the bad publicity and decline and haven’t been enough to put off at least one analyst: Ben Kallo at RW Baird today reiterated his Buy rating and raised his target price to $45 a share

We think Q1:13 could be TSLA’s first cash flow positive quarter. In�December, Elon Musk tweeted that TSLA had narrowly been cash flow positive�for a full week. With production fully ramped, we would expect the company to be�achieving the necessary economies of scale to record its first full cash flow�positive quarter in Q1:13. Improving manufacturing efficiency should drive further margin/cash flow improvement throughout the year.

There is of course the issue of just how ready and willing Americans are to start buying electric cars — the Times review raised the issue that charging stations still aren’t bountiful, for example.

But Kallo contends such a concern is beside the point right now; it won’t require too much take-up by consumers to make Tesla successful:

Despite views on adoption rate for EV�s, TSLA needs low penetration into the North American auto market to meet our/consensus estimates. Based on Nor th American market size of approximately 15M automobiles sold per year, TSLA would need to capture less than 0.5% of the overall market to meet our estimates. Although estimates of EV adoption differ dramatically, we think TSLA�s superbly designed automobiles, its competitive price point, and its relatively low level of required market penetration should allow the company to meet our estimates.

Kallo’s call is fairly a bold one — the mean target price among Wall Street analysts is $39.67. Roughly half of analyst who cover the stock (which is up more than 20% in the past three months) rate it a Buy, according to FactSet.