Will the Tesla Model S Price Hike Affect the Company’s Stock Price?

A few weeks after the Tesla Model S won Motor Trend’s 2013 Car of the Year award, Tesla Motors (NASDAQ:TSLA) announced it will be increasing the base price of its flagship vehicle.

George Blankenship, VP of Worldwide Sales and Ownership Experience, explains, “Today, Model S is the most award-winning car of the year and the base price remains at $57,400, the same price set over three and a half years ago. During this same period of time most automotive companies have had at least three price increases and general inflation has gone up 8.75 percent. A straight 8.75 percent CPI increase would now yield a base price for Model S of $62,400, an increase of $5,000. We are increasing prices only half that amount, giving Model S a new base price of $59,900 before federal tax credits.”

Or, more simply, $2,500 to the base price of each Model S variant.

CHEAT SHEET Analysis: Will the Price Hike Move Tesla’s Stock?

One of the core components of our CHEAT SHEET Investing Framework focuses on catalysts that will move a company’s stock. Speculation about the price increase has brewed for a few days, and when it was officially announced on November 29, the stock dipped about 1 percent. No big waves here.

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First, the price increase is very moderate, representing a 4.3-percent increase in the base price of the 40-kWh variant, and a 3.2-percent increase in the base price of the 85-kWh variant.

Second, there seems to be some wiggle room for the price given the car’s incredibly high demand. Those who drive it report what amounts to a religious experience. The quality of the Model S alone has driven the stock, with shares coming up nearly 7 percent since it won Motor Trend’s COTY award. Shares are up over 13.5 percent in November as positive Model S reviews erase previous doubts about the company that emerged as the result of some production delays.

The Model S is the luxury superstar in the growing field of electric and battery-electric vehicles. Even before the price increase it competes in an entirely different market from lower-priced offerings from General Motors (NYSE:GM) like the Chevrolet Spark, expected to be priced under $25,000 after the federal tax credit, and Ford’s (NYSE:F) electric Focus sedan, which starts around $39,200.

The price increase looks like it won’t materially impact demand for the vehicle, which already has a waiting period. Instead, many investors recognize the decision as a good way to help control historically negative earnings. With the increase taking affect after December 31, no one currently waiting for the vehicle or thinking about ordering one in the near future will be snubbed anyways.

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