Case Study: Tesla (TSLA) stock according to high performing analysts
Key Points
Performance
Tesla shares fell by 12.06% this week, pushing their year-to-date gains down to 52.71%. Despite recent weakness, TSLA has still outperformed the S&P 500 and the Nasdaq Composite Index, which are up by 8.09% and 16.23%, respectively, on a year-to-date basis.
Event & Impact
Tesla posted its first quarter results this week, missing top-line expectations and meeting bottom-line estimates. During Q1, TSLA’s revenue totaled $23.3 billion, missing Wall Street’s consensus estimate by $60 million. Tesla’s Q1 non-GAAP earnings-per-share came in at $0.85, which was in-line with consensus estimates.
Noteworthy News:
Tesla’s margins fell during Q1 on the heels of recent price cuts. While it’s true that this company continues to produce margins that are much higher than its legacy automotive peers; analysts fear that rising competition across the electronic vehicle space is going to cause ongoing bottom-line struggles for Tesla.
Nobias Insights
92% of recent articles published by credible authors focused on TSLA shares offer a “Bearish” bias. 2 out of the 4 credible Wall Street analysts who cover TSLA believe that shares are likely to rise in value. The average price target being applied to Tesla by these credible analysts is $175.50, which implies upside potential of approximately 6.3% relative to the stock’s current share price of $165.08.
Bullish Take Kit Norton, a Nobias 4-star rated author, said, “Wood's Ark Invest also predicted Thursday night Tesla will reach a $2,000 per share price in 2027. Wood's firm sees Tesla's autonomous "robotaxi business" as a "key driver" for this estimated valuation.”
Bearish Take Nobias 5-star rated author, David Trainer, stated, “Tesla faces an increasingly uphill battle to secure its competitive position, which makes its current valuation look even more unrealistic.”
TSLA Apr 2023
Tesla reported its first quarter earnings this week, missing Wall Street’s revenue expectations and posting non-GAAP earnings per share that were in line with consensus estimates. This report caused TSLA shares to fall by 12.06% during the week. However, even after this double digit sell-off, TSLA shares are up by 52.71% on a year-to-date basis.
2023 has been a great year for TSLA shareholders; however, these strong gains come after a tumultuous 2022 and on a trailing 12-month basis, Tesla shares are down by 50.91%. In other words, Tesla shares continue to trade with extremely high volatility, making it clear that this is a battleground stock.
Bearish Nobias Credible Analysts Opinions:
Shanthi Rexaline, a Nobias 4-star rated author, put a spotlight on the negative impact that Tesla’s recent sell-off has had on its founder and CEO, Elon Musk’s, net worth in a recent article that she published at Benzina. She said, “Musk, the world's second richest person, saw his net worth drop sharply on Thursday. At the end of the day, his net worth stood at $164 billion, down $12.6 billion from Wednesday, according to Bloomberg's Billionaires Index.”
Regarding Musk’s resume, Rexaline added, “The billionaire now owns four companies, including his flagship electric vehicle business, Tesla. He is also at the helm of SpaceX, Boring Company, Neuralink and Twitter. Looking at Tesla’s most recent quarter, Rexaline stated, “The negative reaction reflected investor worries over a further contraction in margins after auto gross margin, excluding regulatory credits, fell below the 20% threshold in the first quarter.” “To make matters worse,” she added, “Musk brought up the issue of Tesla's ability to sell at zero profit and make up for it long-term with the high-margin autonomy software.”
The Value Portfolio, a Nobias 5-star rated author, touched upon Tesla’s bottom-line struggles and attached a “Sell” rating to TSLA shares in their post-earnings report. The Value Portfolio mentioned ongoing price cuts and apparent demand issues for Tesla products, stating, “Tesla cut prices on its Model 3 and Model Y vehicles in the United States on Wednesday, the 6th time YTD. Soon after, the company announced its earnings, showing a collapse in margins across the board, a trend that we expect to get markedly worst going into the rest of the year.”
The author continued, “It's worth noting that the company's prices have dropped by towards early-2021 levels, but they are still above starting launch prices. That means the company has seen demand drop substantially versus supply to prior levels that no longer enable the COVID-19 induced price raising.
“Additionally,” The Value Portfolio said, “it's worth noting that the company's production has increased much faster than deliveries, with lease accounting increasing the fastest, and the company now having a record 15 days of vehicle inventory.” “In our view, that's another sign of decreasing demand, and a particularly worrying number for the company's margins,” they continued.
With regard to rising competition in the EV market, The Value Portfolio wrote, “In some markets, where the competition is more robust, Tesla is no longer the largest EV manufacturer. Consistent price cuts show its struggles.” They also broke down struggles in other areas of Tesla’s business.
The Value Portfolio wrote, “We will once again state the company's solar business is irrelevant. Residential solar is ~$2k / kWh, meaning the company's most recent quarter of deployments earned roughly $130 million in revenue. We see the business as a non-starter to the company's long-term earnings where it has a minuscule market share and no competitive advantages.”
The Value Portfolio called Tesla’s energy storage segment a “bright spot” during the quarter. “However,” the continued, “the company's margins are roughly 10% and it costs roughly $475 / KWh / megapack. Even at 100 GWh, which is years away, that's $50 billion in revenue or $5 billion in profit, nowhere near enough to justify the company's valuation.”
Overall, The Value Portfolio said, “The company saw gross profit decline 17% YoY and GAAP gross margins declined by almost 10% YoY.” “The company's GAAP net income dropped 24% YoY to $10 billion annualized, giving the company a P/E ratio of almost 60x, in an expensive and competitive business with minimum growth,” they added.
In conclusion, The Value Portfolio stated, “We expect the company's profits to continue to drop, pushing up its lofty valuation of 60x P/E and 1% FCF yield. The company exists in a difficult industry and it's clear that the industry expects a downturn from recent white-hot markets. As a result, at this time we recommend selling / shorting the stock.”
In a recent article that he published a Forbes, Nobias 5-star rated author, David Trainer, also highlighted his bearish outlook for Tesla shares. fter 1Q23 earnings and another missed growth goal, I continue to see Tesla as one of the most overvalued stocks in the market. Even in an optimistic future cash flow scenario, shares could trade as low as $28/share.
Tesla’s latest earnings definitively show that it is not immune to competitive challenges and will likely see lower profitability in the future. Any investor doing due diligence needs to be aware of the disconnect between Tesla’s fundamentals and the future growth implied by its stock price, which I will quantify below.
Tesla has grown deliveries at less than the 50% year-over-year (YoY) “goal” in four straight quarters as well as for the full year 2022. Tesla’s price cuts more likely point to its lack of pricing power in the increasingly competitive affordable EV market.
Going forward, I would expect Tesla’s ASP to fall as further price cuts are needed as incumbent manufacturers scale up EVs at much lower entry prices. Such price cuts will directly undermine Tesla’s ability to grow profits at anywhere close to the rate implied by its valuation.
Over the past five years, Tesla has burned a cumulative $4.2 billion in free cash flow (FCF) and generated negative FCF in all but one year (2019) of its existence as a public company. New entrants into the EV space, as well as ongoing competition from legacy automakers who want to ensure their long-term survival by taking market share in the electronic vehicle market. “Tesla faces an increasingly uphill battle to secure its competitive position, which makes its current valuation look even more unrealistic.”
Bullish Nobias Credible Analysts Opinions:
Not everyone came away from Tesla’s recent results with bearish sentiment, however. In an article published at Investors.com, Kit Norton, a Nobias 4-star rated author, noted that famed technology investor and long-term Tesla bull, Cathie Wood of Ark Invest, made bullish statements about Tesla and added to her fund’s position in the stock this week.
Norton said, “Wood's Ark Investment Management spent an estimated more than $40 million on 256,000 TSLA shares Thursday, after Tesla sank nearly 10% following the EV company's first 2023 financial announcement.”
“Along with the TSLA share purchases, Wood's Ark Invest also predicted Thursday night Tesla will reach a $2,000 per share price in 2027. Wood's firm see Tesla's autonomous "robotaxi business" as a "key driver" for this estimated valuation,” he wrote.
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Lastly, Norton added, “Cathie Wood's Ark sees Tesla sales in 2027 between 10.3 million and 20.7 million, with massive revenue from autonomous driving. Ark has long made sky-high predictions about Tesla sales and robotaxis that haven't come to pass.”
Overall bias of Nobias Credible Analysts and Bloggers:
Overall, 92% of recent articles written by credible authors which focused on Tesla stock expressed a “Bearish” sentiment towards shares. However, the credible Wall Street analyst community that the Nobias algorithm tracks is more positive on the stock. Two out of the four credible analysts that have offered opinions on Tesla shares believe that they’re likely to increase in value.
The average price target being applied to TSLA shares by these credible individuals is $175.50. After TSLA’s -12.06% performance this week, shares trade for $165.08. Therefore, that average analyst price target implies upside potential of approximately 6.3%.
Disclosure: Nicholas Ward has no TSLA position. Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.