Tesla stock surges after Morgan Stanley report

Shares of Tesla Motors Inc. surged 16 per cent Tuesday after a Wall Street analyst told investors that Tesla could shake up the electric utility sector as well as the auto industry on the same day Consumer Reports named the Model S its top pick of this year's cars.

Analyst Adam Jonas of Morgan Stanley wrote in a note to investors that Tesla could nearly double its share of the global car market by 2028. And it also could create another lucrative business by building battery packs for energy storage. He doubled his target price for Tesla stock to $320 per share from $153.

Tesla shares rose $34.65 to close at $252.30 Tuesday, and continued their rise in premarket trading early Wednesday, touching $258.60. That's just pennies off the stock's all-time high.

Tesla is expected this week to formally announce the building of a "Gigafactory" to produce batteries with Panasonic and other partners. It would be the largest lithium-ion battery pack factory in the U.S.

Such batteries could be used at homes and businesses to store energy for times of peak electricity use. Electric companies nationwide are switching to a system that charges people more for energy during peak hours, such as early evening, and batteries could cut those costs.

"If Tesla can become the world's low-cost producer in energy storage, we see significant optionality for Tesla to disrupt adjacent industries," Jonas wrote, adding that the electric energy storage business is worth $2 trillion globally.

The factory would also cut the company's own battery costs, he wrote.

Tesla, led by billionaire Elon Musk, said last week it expects to deliver more than 35,000 of its Model S sedans this year, up 55 per cent from last year as it expands in Europe and China. Musk said on an earnings conference call that Tesla plans to boost production to more than 1,000 cars per week from the current pace of 600 a week.

The Model S starts around $70,000.

Tesla must also ramp up for the Model X, a new electric SUV that it will start producing later this year. The company also plans a less-costly car for the masses that could go on sale as early as 2016.

Stifel analyst Jamie Albertine, in an investor note Tuesday, said that Tesla has said the new battery factory is being set up to handle demand for the new "Model E" lower-priced car for the masses. But Albertine, who hasn't placed a price target on the stock, wrote that the energy storage market could be far more significant to Tesla than vehicle sales.

"While we remain negative on TSLA shares above $200 as an automotive OEM (original equipment manufacturer), the energy storage opportunity requires a broader perspective and could very well justify current, if not higher valuation levels," Albertine wrote.

Tesla shares are up about 70 per cent so far this year and are worth more than seven times what they were at the end of 2012.

The Tesla Model S electric sedan is Consumer Reports' top pick in this year's automotive rankings.

The magazine cited the Model S's sporty performance and technological innovations, including its 360-kilometre range. But it acknowledged that the car is expensive. Consumer Reports paid $89,650 for the Model S it tested.

For less than a third of that price, the Toyota Prius hybrid got the nod as Consumer Reports' top green car.

The rankings, now in their 18th year, pick Consumer Reports' favorites among the 260 vehicles its team has recently tested. The rankings are closely watched in the auto industry, since shoppers consistently cite Consumer Reports as a main source of car-buying advice.

Consumer Reports buys vehicles anonymously and performs more than 50 tests on them, including evaluations of braking, handling and comfort. The magazine's testing team drives each vehicle for roughly 9,600 kilometres.

The Model S, which went on sale in 2012, got the highest score ever recorded in Consumer Reports' automotive testing last spring. But at the time, the magazine didn't have enough data from subscribers to rank its reliability.

The magazine's annual automotive issue goes on sale next month.

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