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CLSA’s Andrew Fung: Can Tesla Motors Inc (TSLA)’s Upgraded Model S Move The Needle Up?

Tesla Motors Inc (NASDAQ:TSLA) has announced an upgrade to the base model of its Model S on Wednesday. The new Model S 70D will replace Model S 60 as the base model. The vehicle also has other higher end models like Model S 85, Model S 85D and Model S P85D. The newly introduced Model S 70D will have a 70kWh battery with 240 miles range as opposed to 60kWh and 208 miles range in the older model. CLSA Americas Research Analyst, Andrew Fung talked on CNBC about how the upgraded Model S 70D will impact the sales and performance of Tesla Motors Inc (NASDAQ:TSLA) stock.

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Everything seems positive about the new Model S 70D, but could there be some negatives too for Tesla Motors Inc (NASDAQ:TSLA)? Fung accepted that Model S 70D is a nice upgrade and he feels that this upgrade has made it a more compelling product when compared to Model S 60. He pointed out that the additional features and upgrades have made the new Model S 70D looks cheaper than the Model S 60. He added that this will be beneficial for Tesla Motors Inc (NASDAQ:TSLA) to meet the long term sales volume.

But Fung thinks that there is a downside to the introduction of new Model S 70D by Tesla Motors Inc. He said that the downside is the reason behind their reason downgrade on Tesla Motors Inc. Fung’s firm has a ‘Underperform’ rating on Tesla Motors Inc stock with $220 price target. He said that the introduction of Model S 70D has made the upgrade to Model S 85D less compelling and impact the sales of the higher end model. He feels that this would weaken the mix in this year.

“[…] Consistent with our recent downgrade, the new 70 makes the upgrade to 85D less compelling now and cannibalize the sales of the more expensive model in our view. This would obviously weaken the mix this year, which hits out at our concerns on the margin pressure and downward earning revision that could happen in second half of 2015. [..] These concerns will continue to pressure the stock in this year,” Fung said.

Fung insisted that Tesla Motors Inc will continue to face margin pressure for rest of the year and he said that the introduction of new Model S 70D makes it worse at it cannibalizes the sales of high cost Model S P85.

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