Tesla Jumps on Upgrade Based on Potential Gen III Appeal

Tickers in this article: TSLA

NEW YORK (TheStreet) -- Tesla Motors shares were higher in premarket trading Tuesday, gaining 2.7% to $184.57, following an upgrade based on higher-than-expected appeal for the upcoming third-generation model.

Wedbush analyst Craig Irwin upgraded shares to "outperform" from "neutral" and raised his price target to $240 from $180, as he believes Tesla's mass-market car is going to appeal to more buyers than he originally thought.

"In a survey of 892 respondents, we were pleasantly surprised that over 20% of respondents indicated they would "absolutely consider" driving an EV (vs. 65% "maybes"), and 19% were willing to pay a $5,000 or greater premium for a 90% improvement in fuel economy," Irwin penned in a note. "This indicates a healthy number of mainstream car buyers are likely willing and able to pay the initial premium to buy an EV, where they would expect a payback based on improved fuel economy."

In addition to upgrading shares, Irwin raised his estimates for 2017, as he now expects the third-generation model could sell anywhere between 300,000 and 500,000 units. He previously forecast it as having the potential to sell 150,000 units.

He also raised 2013 and 2014 estimates, citing Tesla Forum VINs (vehicle identification numbers) showing as many as 7,000 units were likely produced during the third quarter of 2013.

Irwin surveyed people looking at a car in the $35,000 to $45,000 price range, a range Tesla CEO Elon Musk has indicated he would price the mass market car.

In several interviews earlier this year, Musk said the car, which does not have a name yet, would be priced below $40,000. On Tesla's second-quarter earnings call, Musk described the third generation as an "affordable car" but did not give a specific dollar amount.

Tesla's second generation car, the Model X, is slated for release late next year.

--Written by Chris Ciaccia in New York

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