Saturday, December 04, 2021 4:53:57 PM
Vehicles at a Tesla Supercharger station in Firebaugh, Calif.
David Paul Morris/Bloomberg
Tesla ‘s market capitalization recently moved well past $1 trillion, but the independent investment-research firm New Constructs believes the company is overvalued by roughly $1 trillion of that. The firm’s CEO, David Trainer, says Tesla shares could fall as much as 88%, to roughly $150 a share.
His argument, which isn’t the first extreme bear or bull case Tesla (ticker: TSLA) investors have had to weigh, is mainly based on math.
Tesla stock, which has risen about 57% over the past month, was little changed in premarket trading Friday after gaining up 1.3% Thursday afternoon, while the S&P 500 advanced 0.4% and the Dow Jones Industrial Average finished off 0.1%. Strong third-quarter deliveries, earnings, and a sale of 100,000 vehicles to the rental-car company Hertz (HTZZ) have sent the stock through the roof.
Today, Tesla is worth roughly $1.2 trillion–a figure Trainer says makes no sense. Tesla didn’t immediately respond to a request for comment.
“The $1.2 trillion valuation implies Tesla owns 118% of the entire global passenger EV market and becomes more profitable than Apple [AAPL] by 2030,” wrote Trainer in a Thursday report. His work looked at what kind of sales and earnings the company would have to achieve to be worth that much.
Trainer believes Tesla would have to sell almost 31 million vehicles in 2030 to justify the current valuation. That is more than he expects the entire industry to produce, based on figures from the International Energy Agency. The base case in the IEA’s 2021 outlook for electric vehicles projects annual global sales of about 28 million EVs at the end of the decade.
To be sure, that IEA report was published in April, before many auto makers committed to spending billions of dollars on vehicle electrification and battery-production capacity. It was in August that President Joe Biden announced his goal for EVs to account for 50% of new-car sales by 2030. And the IEA report includes a best-case scenario with about 47 million EVs sold around the world annually by 2030.
ADVERTISING
There are, of course, Tesla bulls, and most of them don’t believe Tesla is going to sell 31 million cars a year by 2030. Morgan Stanley’s Adam Jonas, who rates the stock at Buy and has a $1,200 price target for shares, predicts annual sales of about 8 million units by then.
Jonas believes Tesla will be more profitable than traditional auto makers. But Trainer assumes that Tesla will have operating profit margins in line with those of General Motors (GM). With 31 million vehicles sold, that might mean Tesla earns $131 billion in 2030 operating profit, higher than the $100 billion-plus Apple is pulling in now, he said.
But if Jonas’s call for Tesla to sell 8 million vehicles in 2030 is correct, Trainer said, that would yield earnings of about $30 billion annually, assuming Elon Musk’s company only matches GM’s net operating after-tax profit margin of 8.5%.
Recently, of course, some of Tesla’s profit margins have been industry-leading, which is no surprise given the popularity of the vehicles and the fact that the company doesn’t have the pension obligations its older rivals face. Third-quarter gross margins exceeded GM’s, Ford Motor ‘s (F), and Volkswagen’s (VOW3. Germany), to name a few.
Longer-term margins are hard to predict, though Trainer told Barron’s he thinks his assumption is fair. They depend on factors such as software sales—all auto makers are offering software-enabled features that can be sold on subscriptions—as well as battery costs.
“Putting it all together: Tesla provides poor risk/reward,” Trainer wrote.
His arguments are unlikely to sway the many bulls who follow the stock. There are 14 analysts, almost one-third of the 44 Bloomberg tracks, with target prices that value Tesla at $1 trillion or more.
The bulls believe Tesla is the EV leader and will increase its sales and production volume at 50% a year on average for the foreseeable future. They also believe EVs will be more profitable than traditional vehicles and that Tesla will maintain its cost leadership. Many bulls also believe that Tesla’s power-storage business, plus a robotaxi operation it could launch if it succeeds in developing self-driving cars, will generate significant sales.
Time will tell who is right. The bulls are feeling good these days given Tesla’s strong results. And the bears are staring agape at the stock’s valuation, which essentially matches all of the world’s traditional auto makers combined.
Recent TSLA News
- Futures Pointing To Roughly Flat Open On Wall Street • IH Market News • 04/30/2024 01:07:52 PM
- U.S. Index Futures Point to Mild Decline Ahead of Key Earnings and Fed Rate Decision • IH Market News • 04/30/2024 11:59:59 AM
- Alphabet CEO’s Billion-Dollar Wealth, Microsoft’s $1.7B Indonesia Investment, and More News • IH Market News • 04/30/2024 11:58:40 AM
- U.S. Stocks Finish Quiet Day Modestly Higher • IH Market News • 04/29/2024 08:25:53 PM
- Philips Stocks Soar 47% Following US Deal, Tesla Bolsters Presence in China, and More News • IH Market News • 04/29/2024 11:11:24 AM
- Anglo American Rejects BHP Group’s Offer, Toyota Invests $1.4 Billion in Indiana, and More News • IH Market News • 04/26/2024 11:48:07 AM
- Futures Pointing To Sharply Lower Open On Wall Street • IH Market News • 04/25/2024 01:09:21 PM
- U.S. Futures Drop in Pre-Market Trading as Tech Stocks Plunge After Meta Issues Gloomy Forecast • IH Market News • 04/25/2024 11:53:54 AM
- U.S. Stocks Finish Lackluster Session Little Changed • IH Market News • 04/24/2024 08:33:00 PM
- Block Innovates Bitcoin Mining, DOJ Proposes 3-Year Prison for Changpeng Zhao, and More Crypto News • IH Market News • 04/24/2024 05:50:55 PM
- Upbeat Earnings News May Lead To Extended Rebound On Wall Street • IH Market News • 04/24/2024 01:09:05 PM
- U.S. Futures Display Mixed Results Amid Earnings, WTI and Brent Crude Prices Dip in June Futures Trading • IH Market News • 04/24/2024 11:31:20 AM
- Tesla Surges 12% with 2025 Affordable Vehicle Promise, Evotec Slumps 36% on Uncertain Outlook, and Latest Earnings • IH Market News • 04/24/2024 11:29:58 AM
- Coca-Cola and Microsoft Sign Billion-Dollar Agreement, Apple Event Set for May 7, and More News • IH Market News • 04/24/2024 11:28:02 AM
- Stocks Close On Firm Note For 2nd Straight Day On Earnings Hopes • IH Market News • 04/23/2024 09:00:38 PM
- Tesla Releases First Quarter 2024 Financial Results • Business Wire • 04/23/2024 08:09:00 PM
- Futures Pointing To Extended Rebound On Wall Street • IH Market News • 04/23/2024 01:11:27 PM
- U.S. Index Futures Rise in Pre-Market, Oil Prices Dip Slightly • IH Market News • 04/23/2024 11:26:41 AM
- Apple Loses Market Share in China, GM Surges in Pre-Market Following Upward Revisions for 2024 Projections, and More News • IH Market News • 04/23/2024 11:25:34 AM
- U.S. Stocks Close On Bright Note Despite Coming Off Day’s Highs • IH Market News • 04/22/2024 08:38:04 PM
- Despite Record EV Production Numbers, Shortage of Battery Metals Looms • PR Newswire (US) • 04/22/2024 03:24:00 PM
- Despite Record EV Production Numbers, Shortage of Battery Metals Looms • PR Newswire (US) • 04/22/2024 03:23:00 PM
- Despite Record EV Production Numbers, Shortage of Battery Metals Looms • PR Newswire (Canada) • 04/22/2024 03:23:00 PM
- Li Auto Stock Drops 7.3% Amid Tesla Price Cuts, Salesforce Retreats from Informatica Deal, and Other Market Updates • IH Market News • 04/22/2024 12:09:21 PM
- Nasdaq, S&P 500 Extend Losing Streaks On Tech Weakness But Dow Advances • IH Market News • 04/19/2024 08:32:14 PM
NanoViricides Reports that the Phase I NV-387 Clinical Trial is Completed Successfully and Data Lock is Expected Soon • NNVC • May 2, 2024 10:07 AM
ILUS Files Form 10-K and Provides Shareholder Update • ILUS • May 2, 2024 8:52 AM
Avant Technologies Names New CEO Following Acquisition of Healthcare Technology and Data Integration Firm • AVAI • May 2, 2024 8:00 AM
Bantec Engaged in a Letter of Intent to Acquire a Small New Jersey Based Manufacturing Company • BANT • May 1, 2024 10:00 AM
Cannabix Technologies to Deliver Breath Logix Alcohol Screening Device to Australia • BLO • Apr 30, 2024 8:53 AM
Hydromer, Inc. Reports Preliminary Unaudited Financial Results for First Quarter 2024 • HYDI • Apr 29, 2024 9:10 AM