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Used cars could be Tesla's secret weapon

Mar 10, 2015, 00:50 IST

Over the weekend, Credit Suisse Dan Galves published a research note on Tesla. Galves is bullish on the electric car maker: his $290 target price is about where the stock peaked in September of 2014 - $100 higher than where Tesla is currently trading and miles above Tesla mega-bear John Lovallo of Bank of America Merrill Lynch, whose target price is a mere $65.

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Galves makes the highly relevant point that Tesla needs strong demand in 2015 to hit its optimistic sales goal of 55,000 vehicles - and he thinks that demand will appear, citing an order backlog of 10,000 cars in 2014.

He also takes a look at the value of used Teslas and the impact that their prices could have on the company's balance sheet. In a nutshell, Tesla has reported that it shoulders some risk for the residual value of cars that it leases, due to the way that these vehicles are financed (through third parties). So there's some concern that, given the newness of Teslas, their used value could decline and Tesla will be on the hook.

Galves provides some insight on that front:

So Galves doesn't think Tesla has anything to worry about here.

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In fact, he thinks that the sturdiness of Tesla residual values means that, in the short and medium term, the Model S will significantly outperform other luxury sedans on used pricing. Which is actually very impressive - and an indication that demand for Teslas will remain strong moving forward. The company has often stressed that demand isn't a problem - being able to build enough cars to satisfy demand and avoid making customers wait for their cars is.

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