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Tesla Up on Rating Upgrade despite Flaws Reported in Model S - Analyst Blog

Electric carmaker Tesla Motors, Inc. ( TSLA ) garnered some negative publicity for its Model S sedan on the day its stock climbed 4.51% on the back of a rating and target price upgrade by a Deutsche Bank analyst. The news doing the rounds was a result of Consumer Reports' revelation that Model S cars have been found to develop some snags during long-term usage.

Some of the flaws discovered include blanking out of the center touch screen (which performs several key functions), noise from the roof and problem with the front trunk lid release. Most of these problems were found to emerge after the car was driven more than 10,000 miles. Additionally, the car's outside door handles, which automatically extend when the driver approaches or touches them, failed to work on occasions. Tesla fixed this problem through a software update.

Edmunds.com, a California-based automotive data and pricing company also recently reported some problems with Model S including stalling of the car, which required replacement of the main battery pack; freezing of the touchscreen; a creaky steering wheel and problems in opening the sunroof.

However, Tesla fixed all these issues free of charge for both Consumer Reports and Edmunds.com, as the cars were covered by warranty. Moreover, the company admitted that the early models of the car had some flaws which have been fixed in the later models. Tesla conducts a product excellence meeting on a weekly basis to actively address any flaw pointed out by customers.

It is worth noting that Consumer Reports had earlier named Model S the best car of 2014 in its survey of about 260 vehicles. It evaluated cars on the basis of over 50 tests along with reliability ratings provided by subscribers and scores earned by the cars in government and insurance industry crash tests.

The electric sports sedan also scored 99 out of 100 in a consumer satisfaction survey by the magazine. This is the highest score in the last few years. Results are based on the response of 350,000 Consumer Reports subscribers who own a car. Around 637 of them were owners of the 2012 or 2013 versions of Model S.

However, Consumer Reports is not reducing the car's average reliability rating yet, although it believes that a downgrade is possible, depending on the frequency and severity of the problems reported by subscribers.

Meanwhile, a Deutsche Bank analyst raised Tesla to Buy from Hold and increased the target price to $310 from $220. The analyst expressed the opinion that Tesla's annual production will hit 1 million units by 2025 driven by the expected acquisition of 1-2 assembly facilities in the next 3 years. As a result, the company's growth will likely surpass expectations. The rating upgrade drove Tesla's shares up 4.51% to $259.32 on Aug 11.

Tesla currently carries a Zacks Rank #1 (Strong Buy). Some other auto stocks worth considering include CarMax Inc. ( KMX ), O'Reilly Automotive Inc. ( ORLY ) and Pep Boys - Manny, Moe & Jack ( PBY ). All these stocks bear a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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