Tesla Motors Inc (NASDAQ:TSLA) stock has fallen this week after more than one Wall Street voice called a top to the firm’s value growth. Baird’s Ben Kallo struck out with dissent from that view on Wednesday morning. He thinks that his peers are ignoring some of the real boons of the Model X, and he’s still telling his clients to Buy Tesla Motors stock.
Mr. Kallo says that “recent downgrades, which have been largely valuation driven, do not fully value the Model X launch.” They’re missing a key part of the launch says Kallo. “The Model X will increase TSLA’s brand value” and will prove the firm’s worth as a long term investment.
Building a brand at Tesla Motors
Among certain groups, such as those that love tech or those that live in certain California, there’s little that can be done to increase awareness of Tesla Motors. The firm’s Model S is all over the place in Palo Alto and on Engadget. Outside of those havens, there are many who know little of the firm, or its widely followed leader Elon Musk.
Awareness has risen incredibly in recent years, but Tesla Motors wants to sell 500,000 cars by 2020 and it wants to sell them at an average price of $50,000 or more. That’s a big hill to climb, and one that will require a huge level of brand awareness. At a meeting on Tuesday CEO Elon Musk said that sales of the Model X will double those of the firm as a whole.
In its 2014 survey of auto brands, Consumer Reports showed that Tesla Motors had been driven into the top 10 brands in the country. That change may have largely come from the publication’s glowing review of the Model S back in 2013. Tesla came in fifth in that survey with a score of 88.
It was behind Toyota, Ford, Honda and Chevolet, which came in from one to four respectively. The firm only came in fourth in terms of fuel economy in the eyes of consumers, and didn’t feature in the top five in quality, safety, design or value.
Tesla Motors really shone in innovation, but most people don’t buy a car because it’s new or innovative. They want something that looks nice, performs well and keeps them and their family safe. That’s what Tesla will try to do with the launch of the Model X.
Cultural traction with the Model X
In a survey released on December 2014 Added Value, a marketing firm, listed Tesla Motors as the firm that had achieved the most cultural traction during 2014. Added Value based its cultural traction metric on how visionary, inspiring, bold and exciting a brand is seen by customers.
Chief Executive of Added Value Maggie Taylor said that “even though it’s a high-end luxury brand, it’s sort of democratized the way that people look at luxury.”
Tesla Motors is sure to top most lists that measure how innovative and visionary a brand is, but that’s not enough to drive car sales. Cultural traction is the only reason that small firm like Tesla, with just 35,000 car sales in 2014, is hitting headlines every day.
There’s a lot more work to do before the firm’s brand is linked with really great cars in the US and across the world. The Model X should form the center of an attack on the shared image of a Tesla, and that’s why Ben Kallo thinks that Wall Street is not putting the right value on Tesla shares.
Jeffries recently released a report on Tesla that showed that those that owned a car were, by and large, in love with the firm. 25 percent of the 145 owners surveyed by the Wall Street firm said they would not even think about buying a car from another firm, while 89 percent said they’d buy a new Tesla even if the .
Booking TV spots at Tesla Motors
Musk forecasts sales of 55,000 cars this year. Adam Jonas of Morgan Stanley reckons that that number will include 50,000 units of the Model S along with 5,000 of the Model X. Some of the first Model X units are likely to end up with TV and movie makers, setting the stage for a change in the way a Tesla is seen.
The Model X has already made its first appearance on TV. In an episode of the 2014 Steven Spielberg-driven Extant, a Model X was briefly on screen. Mr. Spielberg drives a Model S and he’s a big fan of the car. The Model S has appeared on many TV shows in recent years, including an episode of Almost Human on Fox and in The Bold and The Beautiful.
The Internet Movie Car Database has numerous examples of the Model S appearing on the big screen and the small in recent years. The car was also the subject of a South Park episode, a grave cultural honor. The episode had more than one example of CEO Elon Musk beating a special needs child, but it helped to drive the brand into the minds of those watching.
Tesla Motors doesn’t do ads, at least not yet. Up until now the firm has relied on word of mouth and spontaneous references to drive awareness of its cars. While it builds up production of the Model X, that strategy is likely to be kept in place. There are 20,000 reservations for the car, and it will take Tesla Motors quite a while to fill that order.
Valuing Tesla Motors
Baird may say that the brand power of the Model X is being overlooked by those on Wall Street, but they’re not going to agree with him too easily. This morning Brad Erikson of Pacific Crest said that though “Tesla’s differentiation relative to its peer group is nothing short of total” the firm is fairly valued right now.
On Monday Rod Lache of Deutsche Bank said that shares in the firm already reflect the opportunity in both the car and battery world. Both analysts think that Tesla Motors will be strong for years to come and both think that the firm will meet its sales targets in the year ahead.
Tesla Motors stock has seen a hard pullback on the advice of those analysts. The firm’s shares have fallen by more than 8% since last Friday. At time of writing shares int he firm are down by almost 4% for Wednesday.
Tesla’s brand value will keep going up if the launch of the Model X goes well and the reviews are good. The firm should, in the two years before the launch of the Model 3, be able to pivot perception away from innovative and toward “safe,” “cost effective” and “good looking.”
Whether that means the firm is worth more than $35bn remains to be seen. Mr. Kallo thinks so, but many of his peers on Wall Street reckon that with the risks priced in, the promise of that brand value is just not enough to bring their price targets far above $280.
Mr. Kallo says that shares in Tesla Motors should be worth about $335 in twelve months time. He warns that “this is the wrong time to pull out of the stock.”
Update 07:26 EST: Added information from Jeffries report.