That the auto industry is in the midst of a massive transformation is hardly news anymore. Wedbush analyst Daniel Ives calls it an “EV revolution,” which by 2025 will see electric vehicles representing 10% of all autos across the globe and as much as 30% by 2030.
This opportunity is open both to legacy car makers and new startups alike, and to other companies providing the ancillary services and required infrastructure, which the Biden infrastructure plan is set to help kick into action.
However, while there are many companies well-positioned to benefit from the “biggest transformation to the auto industry since the 1950's,” one name stands above them all – Tesla (TSLA), of course.
Ives thinks Wall Street is only just coming to grips with the way it analyses this new segment’s leading players.
“How do you value EV vendors in this parabolic growth backdrop with a fundamental profile still in the early days of playing out?" the analyst asks, “Herein speaks to the emotional bull/bear debate on EV names as valuations continue to move higher and many wondering if this is a bubble or the first stage of a decade long EV metamorphosis?”
What does Ives think, then? Well, first off, the analyst has always looked at Tesla as a “disruptive technology vendor and not a traditional auto vendor.” Secondly, in what Ives estimates over the next decade will be a $5 trillion auto/software driven market, Tesla is likely “to own $2.5 trillion of this pie,” i.e., half, with 100+ OEMs left to fight it out for the remaining ~50%.
As ever, the “linchpin” to Ives’ Tesla bull thesis remains China, which the analyst estimates next year will account for 40% of the company’s deliveries. While Tesla has encountered several headwinds including component shortages and more company specific PR/safety issues, Ives claims there has been an “aggressive” reversal to the “demand trend,” which heading into 2022 puts the EV player on a ~50k monthly run-rate in China.
As such, the analyst believes the “China story is worth $400 per share to the Tesla story for 2022,” and raised the price target from $1,100 to a joint Street-high of $1,400, suggesting shares will climb by 23% over the coming months. No need to add, Ives’ rating stays an Outperform (i.e. Buy). (To watch Ives’ track record, click here)
Ives’ new objective, however, takes his assessment further away from the Street’s call; according to the $887.38 average target, shares are currently overvalued by 20%. Rating wise, opinions are mixed; the stock’s Hold consensus rating is based on 10 Buys, 6 Holds and 7 Sells. (See Tesla stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
Tesla (TSLA) is an EV manufacturer based in California. I am bullish on the stock.
Of all the world's EV companies, Tesla is like the 800-pound gorilla in the room.
You can like or dislike Tesla, but no one can deny the company's amazing growth story.
With that growth, however, some value-focused investors might be concerned about Tesla's valuation.
On the other hand, valuation concerns have been an issue with Tesla for a long time. The company is still capable of expanding, and TSLA stock can still go higher. (See Analysts’ Top Stocks on TipRanks)
A Quick Look at TSLA StockIt's astonishing to consider that TSLA stock cost $50 back in the summer of 2019.
Even back then, some folks believed that the stock was too expensive.
It just goes to show that a stock can go up a lot, and then continue to move much higher.
Despite the onset of the COVID-19 pandemic, TSLA stock was absolutely unstoppable in 2020, as it broke above $700 that year.
In 2021, even though there was a slow period mid-year, the stock eventually resumed its upward momentum.
The peak, so far, has been the 52-week high of $1,243.49, printed in early November.
Therefore, $1,250 will be a critical resistance point until proven otherwise. Watch to see how TSLA stock behaves when it gets to that price, which will likely happen in the coming weeks.
Is the Valuation a Problem?There's a long-standing debate between value investors and momentum traders.
When it comes to TSLA stock, the momentum traders always seem to prevail in the end.
Here's what might cause concern for value investors. Tesla's trailing 12-month price-to-earnings (P/E) ratio is 374.4.
Previous generations of investors would probably consider this figure to be excessively high. However, times have changed and so have companies' valuations.
Bear in mind that during 2021's third quarter, Tesla generated a whopping $8.8 billion in revenues.
Now, think about all of the EV startups out there. No one even comes close to Tesla when it comes to revenue generation.
Some of those startups haven't even sold any vehicles to the public yet, and they don't have a P/E ratio at all because they have no earnings.
Staying in the GreenTesla produced approximately 238,000 vehicles and delivered over 240,000 vehicles in the third quarter of 2021.
Again, you'd be hard-pressed to find an EV startup with numbers like those.
Moreover, Tesla is in a better financial position than some competitors in the EV space.
As of September 30, 2021, Tesla had $45.7 billion in assets (unaudited), and $28.1 billion in liabilities.
Meanwhile, some traders are buying shares of EV companies that are "in the red," so to speak. You won't have to worry about that with Tesla.
Sure, CEO Elon Musk can be eccentric sometimes. It can't be denied, though, that he knows how to run a successful business and generate plenty of publicity.
So maybe, TSLA stock isn't really outrageously priced after all.
Wall Street’s TakeAccording to TipRanks’ analyst rating consensus, TSLA is a Hold, based on 10 Buy, six Hold, and seven Sell ratings. The average Tesla price target is $887.38, implying 19.9% downside potential.
The TakeawayMusk is a fascinating figure, and he is controversial but has made Tesla a huge success.
The company's valuation will continue to be the center of an ongoing debate, which will not end anytime soon.
Still, the data shows that Tesla is a company that can deliver vehicles and stay in a positive financial position.
Hence, TSLA stock might not be as pricey as it seems to value-focused investors.
Disclosure: At the time of publication, David Moadel did not have a position in any of the securities mentioned in this article.
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