Buy a Tesla Before It's Too Late


Your dreams of owning a Tesla may soon be growing even more out of reach.

Maxim Group analyst Aaron Chew issued a research note on Tesla Motors during an otherwise quiet Friday, addressing the stock's recent weakness in light of an upcoming price increase on its Model S sedan.

That catalyst to the chatter was a forum blog posting on Tuesday.

"Yes, we will be announcing a Model S price increase in the near future," reads the entry on Tesla's official website, going on to point out that the plan is to announce the price increase in two to three weeks.

Those that have placed their deposits and finalized their orders won't be subjected to the hike.

Now, a price increase is often seen as a good thing. When Sirius XM Radio announced a 12% price increase for January of this year, the stock rallied. When Coinstar's Redbox introduced a 20% increase on its DVD rentals 13 months ago, the market interpreted that as a sign of strength.

Sirius XM and Redbox wouldn't be increasing their rates unless they felt that consumers wouldn't flinch, and that's essentially what has happened as the satellite radio provider and disc-renting kiosk operator continue to grow their user counts.

However, Tesla's case is unique. Critics have argued that slow production will make it hard for the company to nail its target of producing 20,000 cars next year on gross margins of 25%. Raising prices would help boost the profitability of the cars, but it may also be a response to thin out demand when supply can't keep up with its end of the bargain.

Would an increase of $3,000 to $7,000 on the cars be too much? Would it thin out the pool of potential Tesla buyers?

What happens if the federal $7,500 tax credits on electric vehicles dry up? That's a problem that would naturally have meaty implications for the fate of General Motors' Chevy Volt and Nissan's Leaf, but at least those companies are auto-making giants where plug-in electric vehicles make only a sliver of their sales.

Tesla isn't necessarily kissing the lower end of the electric market goodbye. A Gen 3 model should be out in a few years to compete with the entry-level vehicles in the low $30,000 range. However, a price increase is still a risky call.

We're about to test the elasticity of how much a consumer is willing to pay for a Tesla. Investors can expect the stock to be volatile until we get a definitive answer on that front.

Hit the road
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Longtime Fool contributor Rick Aristotle Munarriz has no positions in the stocks mentioned above. The Motley Fool owns shares of Tesla Motors. Motley Fool newsletter services recommend General Motors and 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.

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