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Why Tesla could see a big drop

Lawrence Lewitinn
Talking Numbers
Why Tesla could see a big drop

Tesla gets an upgrade but has it come too far too fast?

Tesla is up 453% this year alone. But now one investment house says the stock is headed higher – all the way up to $240 per share.

Analysts Craig Irwin and Min Xu at Wedbush say Tesla's stock can go $60 higher in the next twelve months. That would value the company at $29 billion next year. Wedbush also expects total 2014 revenues to come in at $2.8 billion.

(Read more: Tesla shares rise on higher sales expectations)

Here's how Tesla currently compares to Toyota (a part owner in Tesla) and General Motors, the two largest car companies in the world:

Toyota GM Tesla
Revenues (last 12 months) $289.9 billion $152.8 billion $1.3 billion
Net Income (Loss) (last 12 months) $15.7 billion $4.5 billion ($0.2 billion)
Market cap $205.6 billion $48.3 billion $22.7 billion
Vehicles sold in US (2013) 1.7 million 2.1 million <15,000

In other words, Tesla – a company which hasn't had a profitable year – is worth nearly half that of GM with less than 1% of its sales.

Wedbush reached its conclusion in part after conducting a survey of nearly 900 people asking them questions about potentially purchasing an electric car. About 20% said they would absolutely consider it. So, the Wedbush analysts estimate that Tesla will sell 150,000 "Gen III" vehicles by 2017. The Gen III is a proposed model that is supposed to hit the market at a price of $35,000 to $45,000 in the next three years. No actual prototype of the Gen III has been seen as of yet.

In the United States, pure electric car sales such as the Tesla Model S and Nissan Leaf are up 448% compared to last year. According to website EVObsession, a total of 426,580 electric and hybrid cars were sold in the US during the first nine months of 2013. That's up a little more than 30% from last year. That may be a lot of cars but it's just 3.6% of all vehicle sales this year. According to Motor Intelligence, 11.8 million vehicles were sold in the first nine months of the year.

(Read: Cadillac plug-in set for January debut, in more direct battle with Tesla)

Nonetheless, the Wedbush analysts are optimistic that Tesla's sales of a speculative Gen III model will be reason to see earnings per share reach $10.10 in 2017. They see the stock to be valued at 30 times that earnings number and discounted the stock price back 6% per year for four years, thus reaching $240 per share. Given that the 5-year US Treasury bond trades currently trades with a 1.44% yield, the Wedbush analysts assign a risk premium of 4.56% on Tesla's stock.

So, is this projection merely analysis crafted to justify the stock price or is there still some value left to be unleashed for Tesla shareholders?

Reviewing Tesla's fundamentals is CNBC contributor Gina Sanchez, founder of Chantico Global. On the technicals is Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson.

Watch the video above to see Sanchez and Ross analyze whether Wedbush's Tesla estimates are out of whack or if gives a legitimate outlook on Tesla's future.

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