RBC: Tesla Motors Has 14% Upside, Is 'Classic' Story Stock

• The share price of Tesla Motors, Inc. TSLA has declined 13.68 percent over the last three months, hitting a low of $218.87 on August 24.
• RBC Capital’s Joseph Spak has initiated coverage of Tesla Motors with a Sector Perform rating and price target of $280.
• Spak believes that Tesla Motors is “a very innovative and disruptive company with strong growth ahead via disrupting large addressable markets,” although it is still a “classic story” stock.

Analyst Joseph Spak believes that company’s near- to mid-term performance would be “determined by expectations and delivering on targets.” Although long term opportunity appears positive for the company, the mid-term story is one of execution, which Spak believes is “not without risk.”

Currently, Tesla Motors is working on transforming itself into “a manufacturing company on the fly.” Although Spak believes that the company would be able to hit its targets, being able to do so in a timely manner could prove challenging.

According to the RBC Capital report, “Failure to hit near-term objectives may not impact the long-term view, but could hold back the stock or provide a more favorable risk/reward entry point.”

SPak believes that there are several positives for the Tesla story, such as electric vehicles, which are likely to be long term market share gainers. The stock also offers an early stage opportunity to invest in an energy storage play.

The company is the cost leader in the Li-ion battery and Spak expects costs to further decline due to Gigafactory.

However, Spak also voiced some concerns regarding the Tesla story, such as the stock having long term value with limited visibility and “a high margin for error.” In addition, the company has set itself ambitious targets.

“To get more constructive, we need either greater confidence that project timelines can be met, storage is bigger sooner, or a more favorable risk/reward to account for some concerns,” Spak added.