Will Tesla's Model 3 Offer A Positive Surprise For Shareholders?

Credit Suisse’s Dan Galves maintained an Outperform rating on Tesla Motors Inc TSLA, with a price target of $240.

Model 3 Unveil

Galves does not expect “much incremental information” during the company’s Model 3 unveiling, scheduled for March 31.

“However, the real catalyst from the Model 3 unveil will be the first indication of demand for the car, in terms of initial reservations…and we think this will be a positive surprise,” Galves mentioned.

This, in combination with other potential for positive catalysts, such as continued evidence of the ramping of Model X, positive reviews of Model X and Tesla Motors meeting the Q1 delivery guidance, makes the near term risk/reward on the stock positive.

Vehicle Reservation

Reservations can be made in person till 8:30 pm from March 31 onwards at a Tesla store. After 8:30 pm, reservations can be made online.

Galves expects more than 100,000 reservations to be made in the first several weeks, through two key population pools, “1) The ~107k current Model S / X owners. Very few owners we've spoken to will NOT place a Model 3 reservation. 2) Those who have test-driven Model S, but can't afford it.”

The analyst believes that only about 15 percent of the people who test drive the Model S would actually buy the vehicle.

“We believe the reason Tesla conversion is lower is that there is so much interest from those who can't afford the current offerings,” Galves added.