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The Zacks Analyst Blog Highlights: Tesla Motors, Wells Fargo, U.S. Bancorp, Daimler and Exxon Mobil

Zacks Equity Research

For Immediate Release

Chicago, IL – April 5, 2013 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Tesla Motors Inc. (TSLA), Wells Fargo & Company (WFC), U.S. Bancorp (USB), Daimler AG (DDAIF) and Exxon Mobil Corporation (XOM).

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Here are highlights from Thursday’s Analyst Blog:

Is Tesla’s Financial Plan a Game-Changer?

Tesla Motors Inc. (TSLA) has introduced an automotive financing plan, partnering with Wells Fargo & Company (WFC) or U.S. Bancorp (USB), that would make its banked-upon product Model S electric sedan more accessible to customers. Nevertheless, the stock dipped more than 7% to $41.10 yesterday. It seems that investors didn’t get what they hoped for a week after company CEO Elon Musk’s “exciting” tweet comment.

What is Tesla’s Plan?

According to the California-based automaker, customers would need to sign up for a 66-month, 2.95% loan for purchasing a Model S with a price tag of $69,900. The plan relieved car buyers for making a big down payment as U.S. Bancorp and Wells Fargo will provide 10% down payment. The down payment would be covered by U.S. Federal and state tax credits, ranging from $7,500 to $15,000, for electric car buyers.

The plan also included a personal touch from Musk. The CEO himself has guaranteed the resale value of the car, which would be equal to the residual value percentage of the Mercedes S class of sedans, manufactured by Germany’s Daimler AG (DDAIF), a partner of Tesla. The customers have the right but not the obligation to sell the vehicle after 36 months as per the plan.

The company also revealed that the lease-like financing plan, savings from using electricity instead of gasoline, depreciation benefits and other factors would bring the monthly expenses for owning a Model S to less than $500.

What Can Go Wrong?

Investors initially became happy right after the CEO’s tweet comments when Tesla revealed that it expects to be fully profitable in the first quarter of the year rather than modestly profitable due to better-than-expected sales of Model S. The news even sent the stock to 52-week high of $46.68 on Apr 1.

The financing plan also offers significant opportunities to the company in terms of business growth. It could boost Model S sales, as the vehicle would become affordable to a larger population.

The improved sales could increase cash flow and help Tesla increase market share. This could eventually led the company to expand production (Tesla expects the deliveries of Model S to go up to 20,000 this year) and invest in new technologies and facilities. All these would ultimately reduce production costs and boost profits.  

But there are downsides. First, the plan did not appeal to investors in a way the company has imagined. The investors simply considered it as a conventional auto loan with a buyback option despite its colorful packaging.

Secondly, the plan sent an ominous signal to the investors by bringing the uncertainties and risks associated with the niche electric vehicles (EVs) market. This is because the investors have perceived it as Tesla’s trick to attract and retain a certain buyer count for a definite period and cash in on that due to the bleak outlook of the EV market.

The viability of electric cars has been questioned for a long time due to their higher price tag, short driving range and lack of charging stations. The overall outlook was so discouraging that Obama administration had to back away from its goal of putting 1 million electric cars on U.S. roads by 2015 recently.

The viability issue poses a bigger risk for Tesla if we look at its financing plan. Its promise to provide a specific resale value could make it ended up paying a much higher amount than the market value, if demand for EVs falls significantly.

Currently, the stock retains a Zacks Rank #3, which implies a short-term (one to three months) Hold rating.

Exxon, Pemex in Research Agreement

Exxon Mobil Corporation (XOM) signed a five-year technical agreement with the exploration and production arm of Mexico’s state-controlled oil giant Petróleos Mexicanos or Pemex.

The two companies would collaborate in research, science, technology and human-resources training for the exploration, drilling, production, transportation and storage of hydrocarbons. The agreement does not involve paid services.

Exxon Mobil is the world’s largest publicly traded oil company, engaged in oil and natural gas exploration and production, petroleum products refining and marketing, chemicals manufacture, and other energy-related businesses. Approximately 83% of Exxon Mobil’s earnings come from its operations outside the U.S.

Exxon Mobil is one of the world’s best-run integrated oil company given its track record of superior returns on capital employed. Exxon Mobil has long been a core holding for investors seeking a defensive name with continued dividend growth. Exxon Mobil is fairly active in its investment program. The company plans to spend about $185 billion over the next five years, up 29% from the last five-year period.

The capital expenditure covers as many as 21 important oil and gas projects currently under the anvil and are estimated to accumulate over 1 million net oil-equivalent barrels per day by 2016. It includes the Kearl Oil Sands development project in Canada, four in West Africa and Kashagan Phase 1 in Kazakhstan. Exxon is also engaged in a large liquefied natural gas project in Papua New Guinea, which is expected to begin deliveries in 2014. It will further unearth more oil from the development of Hebron oil field offshore the Canadian province of Newfoundland and Labrador. The development will help in recovering over 700 million barrels of oil and the platform is expected to yield its first oil towards the end of 2017.


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Read the analyst report on TSLA

Read the analyst report on WFC

Read the analyst report on USB

Read the analyst report on DDAIF

Read the analyst report on XOM

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