Nasdaq TSLA Tesla

Of all the stocks seeing sky high valuations over the last two years, almost none has garnered more naysayers than Tesla, Inc. (TSLA). The electric vehicle producer and its outspoken billionaire CEO, Elon Musk, have had both investors and financial analysts projecting an imminent collapse for years. Unfortunately for the bears, this massive selloff in shares has yet to materialize. Instead, TSLA stock has increased 1006.47% since January 10, 2020.  

Until Monday afternoon, Tesla had posted four consecutive sessions of losses, finally turning around as traders bought up the discount. The industry-leading EV stock most recently reported better-than-expected deliveries for Q4, and saw its share price climb sharply by the start of the new year.  

Now, just a couple weeks before Tesla's earnings report is released, the bulls and the bears are butting heads yet again.

The Optimist

Recently publishing his encouraging report on the EV company is Adam Jonas of Morgan Stanley, who was enthused by last week’s 20% beat on delivery projections, and is expecting more good news later in the year. Jonas argues that TSLA is widening its already massive lead above its peers, although this is not necessarily a net positive for its sector.  

While he noted that Tesla is not his favorite EV stock, not holding TSLA “means not owning the one company that could make all other EV names obsolete," the analyst said.  

Jonas rated the stock a Buy, and raised his price target to $1,300 from $1,200. This new target currently represents a potential 12-month upside of 22.86%.  

Moreover, he wrote that “Tesla is clearly in the financial, human/cultural, technological position to drive industrialization across vehicle manufacturing, battery technology, supply chain, EV infrastructure and other important aspects of the ecosystem.” 

The Pessimist

Founder and CEO of GLJ Research, Gordon Johnson recently took a vehement stance against Tesla’s outlook. The analyst took to CNBC to decry the high valuation and even higher price targets, stating that the only unique asset held by Tesla, Inc. is its supercharger technology. Johnson added that even this kind of tech could ultimately meet its obsolescence.  

While Johnson may be staunch in his beliefs, his results do not instill the same kind of confidence in investors. On TipRanks, the zero-starred analyst is rated as #7,590 out of 7,762 total experts. Johnson has been seldom correct in his ratings, but perhaps this is the uphill battle he wins.

The pessimistic analyst may be able to state the facts of Tesla’s earnings multiplier and its financial standing, but that doesn’t always translate into a dramatic drop in stock price. If the market has shown us anything over the last two years, it is that share prices can become detached from their underlying fundamentals and behave in relatively irrational ways.  

On the other hand, if Johnson sticks to his view, he may eventually be vindicated. After all, a broken clock is right twice a day.  

The Rest

On TipRanks, TSLA has an analyst rating consensus of Moderate Buy, based on 15 Buy, 9 Hold, and 6 Sell ratings. The average Tesla price target is $1,032.30, suggesting a possible 12-month downside of 2.44%.

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Tesla, Inc. (NASDAQ: TSLA) has inked a deal with Talon Nickel LLC, the U.S. subsidiary of Talon Metals Corp. (TSX: TLO), for the purchase of nickel concentrate to be produced from the Tamarack Nickel Project in Aitkin County, Minnesota. The EV maker plans to make the electric vehicle battery metal in a more environmentally-friendly manner. 

Talon is a base metals company in a joint venture with Rio Tinto on the high-grade Tamarack Nickel Project. Talon currently owns a 51% interest in the Tamarack Project and has the right to increase its stake by 9% to 60%. 

Benefits of the Deal 

Demand for nickel is expected to jump over the next decade on the growing momentum in the EV market. Notably, Nickel boosts energy storage in a battery's cathode, which in turn, extends the range of EVs. 

Therefore, the deal with Talon secures Tesla’s key U.S. source of the metal for its battery factories in Texas and Nevada. Last year, Tesla signed nickel supply deals with BHP in Australia and from New Caledonia. 

Terms of the Agreement 

Per the terms of the agreement, Tesla will purchase 75,000 metric tonnes (165 million pounds) of nickel in concentrate over a period of six years. Additionally, the company has a preferential right to purchase additional nickel concentrate over and above the committed 75,000 metric tonnes if needed. 

The agreement is conditional on Talon earning a 60% interest in the Tamarack Nickel Project, the commencement of commercial production at the Tamarack Nickel Project by Talon, and the execution of detailed supply terms and conditions.  

Talon is expected to commence commercial production on or before January 1, 2026, at the Tamarack Nickel Project, which might be extended for up to 12 months, following which Tesla has the right to terminate the agreement and Talon can sell to other parties. 

Notably, the price at which Tesla will purchase the nickel concentrate will be linked to the London Metals Exchange (LME) official nickel cash settlement price. Also, any additional economics gained from by-products of the nickel concentrate, such as iron and cobalt, will be shared by both parties. 

Official Comments 

SVP of Powertrain and Energy Engineering at Tesla, Drew Baglino, said, “The Talon team has taken an innovative approach to the discovery, development and production of battery materials, including to permanently store carbon as part of mine operations and the investigation of the novel extraction of battery materials. Responsible sourcing of battery materials has long been a focus for Tesla, and this project has the promise to accelerate the production of sustainable energy products in North America.” 

Analyst Recommendations 

Yesterday, Goldman Sachs analyst Mark Delaney maintained a Buy rating on Tesla and lifted the price target to $1,200 (13.41% upside potential) from $1,125.  

Delaney increased his estimates to reflect "robust" deliveries in the fourth quarter, and he expects the company to sell more vehicles in 2022 and 2023. 

Furthermore, the analyst anticipates Tesla to expand margins in the intermediate term driven by its Model Y product and new factories in Berlin, Germany, and Austin, Texas. 

The rest of the Street is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 15 Buys, 9 Holds, and 5 Sells. The average Tesla stock forecast of $1,053.73 implies that shares are fully valued at current levels. Shares have gained 24.6% over the past year. 

Website Traffic 

TipRanks’ Website Traffic Tool, which uses data from SEMrush Holdings (NYSE: SEMR), the world’s biggest website usage monitoring service, offers insight into Tesla’s performance.  

According to the tool, the Tesla website recorded a 7.33% decrease in global visits in December compared to the same period last year. Also, a quarter-to-date comparison showed a decline of 6.71% compared to Q4 2020, while year-to-date website traffic growth stands at 0.95%.

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I am neutral on Tesla (NASDAQ: TSLA) as it has a very strong moat, rapid growth momentum, and a compelling technological edge that should serve it well moving forward.

On the other hand, it trades a massive valuation multiple premium.

Tesla is a manufacturer of home power storage and car batteries, solar panels, and EVs. The EV manufacturing company was founded in 2003; the company gained massive following after the release of Tesla Roadster, the world’s first electric sports car.

Its customers are spread across the globe and Tesla has over 70,757 employees in total, according to the 2020 reports. Its factory is located in Fremont, California, and the headquarters are in Austin, Texas.

It is also known as one of the most valuable automakers in the industry that is constantly working toward sustainable, budget-friendly solutions for its targeted customer base.

Strengths

In 2021, Tesla’s Model 3 became the first electric car to cross the 1-million mark for total units sold across the globe. Innovative capabilities and a niche target audience give this company a greater competitive edge than some its competitors in the industry.

In 2019, Tesla was also named one of the best employers of the year by Forbes, and its employment rate has only increased since then. Highly skilled and talented employees aside, the company is also known as the leading automotive company, after the spike in Tesla Model 3 sales.

The strong brand image and customer-focused approach give Tesla robust brand equity.

Recent Results

In 2020, the total revenues generated by Tesla reached $31.5 billion and gross profit reached $6.6 billion. In 2019, these numbers totaled $24.6 billion and $4.1 billion, respectively. The basic and diluted earnings per share finally showed a positive trend since the 2016 results, with $0.74 and $0.64 attributed to them, respectively.

The gross margin also increased to 21% in 2020, compared to 17% and 19% in 2019 and 2018, respectively. The R&D expenses as a percentage of revenues remained consistent between 2019 and 2020 at 5%.

In 2021, TSLA has seen massive growth, with revenues expected to rise by 65.3%, EBITDA expected to soar by 88%, and normalized net income expected to nearly triple.     

Valuation Metrics

TSLA stock looks richly priced at the moment. Its enterprise value-to-EBITDA ratio is high relative to its history at 63.4x compared to its historical average of 40.7x.

Moreover, its P/E ratio is also very elevated at 111.5x compared to its historical average of 66.4x.

Wall Street’s Take

According to Wall Street analysts, TSLA earns a Moderate Buy analyst consensus based on 15 Buy ratings, nine Hold ratings, and six Sell ratings in the past three months. Additionally, the average Tesla price target of $1,028.59 puts the upside potential at 0.2%.

Summary and Conclusions

Tesla is a clear global leader in EVs as it boasts best-in-class technology, particularly on the battery front.

It is led by visionary CEO Elon Musk, has finally proven that it can be profitable, is growing rapidly, and it also possesses a compelling advantage in artificial intelligence and autonomous driving technology. The future certainly looks bright for the company.

That said, the stock has soared in recent years which means that the valuation is extremely stretched.

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Wall Street's main indexes tumbled on Monday with Nasdaq leading the declines as technology stocks dropped on expectations of a sooner-than-expected rate hike that pushed U.S. Treasury yields to fresh two-year highs.

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