The Tesla (NASDAQ:TSLA) share price closed on 4 April at $171. But in response to the electric vehicle (EV) maker announcing that it had delivered 386,810 vehicles in the first quarter of 2024 — an 8.5% fall compared to the same period in 2023 — one analyst said the stock was worth only $14.
Per Lekander, the Managing Partner of Clean Energy Transition, told CNBC: “This was really the beginning of the end of the Tesla bubble.”
He suggested that a “no-growth” stock should be valued at 10 times earnings. Given the drop in sales, Lekander is expecting earnings per share of $1.40 in 2024. On this basis, he claims the stock’s worth $14. Alarmingly, he added: “I actually think the company could go bust.”
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On the same day, Cathie Wood, of ARK Invest, reiterated her price target of $2,000 by 2027. Citing a potential global self-driving taxi market worth $8trn-$10trn, she believes Tesla is best placed to benefit.
So, who’s right?
Middle of the road
As with most arguments, I believe the truth lies somewhere between these two extremes.
Personally, I can’t see the company going bust. If its stock price did fall to $14, its market cap would be only $43bn. Long before it reaches that level, I’m sure it would become a takeover target for one (or more) mainstream automotive manufacturers. Or Elon Musk would take it private.
But in my view, it’s equally unlikely that the stock will reach $2,000 within the next three years. If it did, the company would have a stock market valuation of $6.2trn. That’s more than Microsoft and Apple combined.
Even at 50 times earnings, to justify a valuation at this level, it would have to have to be generating post-tax profits of $124bn. In 2023, it made $15bn. An eight-fold increase in earnings within three years seems a bit of a tall order to me.
If it was valued in line with Apple, Tesla would require annual profits of $238bn, to justify a $2,000 price tag.
Is history repeating itself?
But Tesla has been here before.
As recently as May 2023, its stock was trading around $170.
And it’s easy to forget that it’s still 50% higher than it was in January 2023. At the time, analysts were expressing concerns about delivery targets being missed, weakening demand and increased competition from China. They were also uncertain how discounts would impact on the company’s margins.
Sounds familiar, right?
That’s because these same fears are currently being repeated.
Final thoughts
The reality is that a company’s only worth what someone’s prepared to pay for it.
And given the current uncertainty, I wouldn’t pay $171 a share for Tesla. Even with the recent drop, I think it’s expensive. If I’m right, I fear the stock has further to fall.
But I’m keeping an eye on Tesla. It’s proved the critics wrong before and I wouldn’t be surprised if it did so again. However, for me to part with my hard earned cash, I’d want to see evidence of an increase in deliveries. And for a stock to justify such a high forward earnings multiple — it’s currently approaching 60 — I’d need to see profits going up.
