Why Tesla's Comeback Will Be Anything but Short-Lived
Tesla Motors 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 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.
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.
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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The article Why Tesla's Comeback Will Be Anything but Short-Lived originally appeared on Fool.com.
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.
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