Index Option Calls
  • Home
  • Latest News
  • Email Whitelisting
  • Privacy Policy
  • Home
  • Latest News
  • Email Whitelisting
  • Privacy Policy
No Result
View All Result
Index Option Calls
No Result
View All Result
Home Latest News

Tesla Stock Is Overvalued by $1 Trillion, Analyst Says. We Looked at the Math.

by
November 5, 2021
in Latest News
0
0
SHARES
0
VIEWS
Share on FacebookShare on Twitter
Text size

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:

RELATED POSTS

Russia’s central bank cuts key interest rate again, citing cooling inflation

Monkeypox does not pose a Covid-style risk despite its swift spread, top health execs say


TSLA

) investors have had to weigh, is mainly based on math.

Tesla stock, which has risen about 57% over the past month, was up 1.7% at about $1,234.17 on Thursday afternoon, while the

S&P 500
had added 0.3% and the

Dow Jones Industrial Average
was off 0.3%. 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 spend 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.

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.

Write to Al Root at allen.root@dowjones.com

ShareTweetPin

Related Posts

Russia’s central bank cuts key interest rate again, citing cooling inflation

by
May 26, 2022
0

MOSCOW, Russia: The Russian central bank has implemented a range of capital controls in a bid to support domestic assets...

Monkeypox does not pose a Covid-style risk despite its swift spread, top health execs say

by
May 26, 2022
0

Business and political leaders gathered in the Swiss hilltop town of Davos in May 2022 for the World Economic Forum....

If There’s a Recession Coming, Not Even the Fed Could Stop It Now

by
May 26, 2022
0

Jerome Powell departing after taking the oath of office for his second term as Federal Reserve chair on Monday. AFP...

Musk’s Revised Twitter Bid Drops Margin Loan, Requires More Cash

by
May 26, 2022
0

TipRanks 2 “Strong Buy” Stocks Under $10 That Are Too Cheap to Ignore The current market conditions – the NASDAQ...

George Soros says Russia’s gas storage is almost full — and Europe should hold its nerve

by
May 26, 2022
0

Russian President Vladimir Putin delivers a speech during a ceremony honouring the country's Olympians and Paralympians at the Kremlin in...

Next Post

Stock futures are flat ahead of October jobs report

American Airlines delays employee vaccine mandate deadline until 2022 after Biden postpones deadline

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

email

Get the daily email about stock.

Please Enter Your Email Address:

By opting in you agree to our Privacy Policy. You also agree to receive emails from us and our affiliates. Remember that you can opt-out any time, we hate spam too!

MOST VIEWED

  • A Couple Stored IRA Gold at Home. They Owe the IRS More Than $300,000.

    0 shares
    Share 0 Tweet 0
  • A California Couple Spent Eight Years Building Their Dream Retirement Home in Costa Rica

    0 shares
    Share 0 Tweet 0
  • Goldman Sachs says buy these stocks to play Web 3.0 and the metaverse

    0 shares
    Share 0 Tweet 0
  • Goldman Sachs picks new stocks to buy — and says these 5 have over 100% upside

    0 shares
    Share 0 Tweet 0
  • In his final warning, this stock trading wizard — who made big money in bear markets and crashes — called this market a bubble like no other

    0 shares
    Share 0 Tweet 0
  • Home
  • Latest News
  • Email Whitelisting
  • Privacy Policy
All rights reserved by www.indexoptioncalls.com
No Result
View All Result
  • Home
  • Latest News
  • Email Whitelisting
  • Privacy Policy

All rights reserved by www.indexoptioncalls.com