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Adding Insurance to the Lineup May Help Tesla’s Bottom Line Long Term, Says Analyst

Although Tesla (TSLA) has not mastered its core business — autos — the company is making its way into an entirely new business: Insurance. 

That’s right: The electric automaker which has its sights on delivering an affordable electric car to the masses recently announced its new service, Tesla Insurance Services. The new business is only available in California, but will eventually roll-out to the rest of the country. Tesla says their insurance will be “competitively priced...designed to provide Tesla vehicle owners with up to 20% lower rates, and in some cases as much as 30%."

3-star Nomura analyst Christopher Eberle says his “anecdotal observations within customer forums such as Tesla Motors Club have shown mixed reactions from Tesla’s California customers” in regards to insurance. The analyst points out that while some customers saw “real savings,” others received quotes that were "over 100% higher than their current policy.” Nevertheless, Eberle believes there is greater strategy to this product longer term and investors should be pleased with Tesla’s prompt progress here.

For now, Eberle is staying on the sidelines with his 'neutral' rating on Tesla stock, while keeping his price target at $270, which implies nearly 22% from current levels. (To watch Eberle's track record, click here

Aside from insurance, China remains a hot topic for Tesla. Last week, China granted the company an exception to the 10% purchase tax, which helps provide Tesla an even playing field against other Chinese EV makers. Further, with Tesla’s Shanghai factory recently entering production testing, Eberle says this indicates the company’s “native supply schedule may be ahead of plan or at least in line with management’s prior expectations, a rarity at [Tesla].” Eberle says both of these events are “unexpectedly positive,” especially given the continued US-China trade war. 

Looking international and beyond China, Eberle says he continues to see evidence of a more organized global delivery operation, particularly within deliveries to the EU. Further, Eberle says data suggests EU deliveries may be inflecting somewhat and historical precedent suggests that September could be a record month for some key EU markets. With North American demand also appearing “solid”, the analyst says overall “that consumer demand is a low-level concern.”

If we turn to the Street in general, we can see that Tesla stock has a Sell analyst consensus rating. In the last three months, TSLA has received 14 ‘sell’, 7 ‘buy’ and 6 ‘hold’ ratings. These analysts have an average price target on the stock of $245.62. Given that TSLA is currently trading at $220.68 this suggests about 11% upside. (See TSLA’s price targets and analyst ratings on TipRanks)