Reuters
Tesla’s rally has gone too far and investors wait a longer time to buy, according to Bernstein analyst Toni Sacconaghi.
The company lowered its score on Tesla shares to “lower performance” since “market performance” on Tuesday, considering its big earnings since the beginning of the year as unsustainable. The updated note is purely a review call, Sacconaghi said. Tesla’s stocks have increased by 59% in the last month alone, as the automaker exceeded profit expectations and approached inclusion in the S-P 500.
Bernstein has maintained his $900 value target, implying that stocks will fall 42% since Monday’s close over next year.
Even with Tesla’s earnings battered and profitable, the valuation of inventory “is mind-boggling,” Sacconaghi wrote. With a larger market capitalization than Toyota and Volkswagen, the company experienced an uptick more like a boom in the generational bubble than the trend of a classic automaker, he added.
“Despite our positive stance on the evolution of electric cars and the structural benefits we think Tesla might have, it’s hard for us to justify Tesla’s current valuation even in our positive/imaginative peak scenarios,” the analyst wrote.
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Estimating Tesla’s short-term trend “can be an idiot game,” Sacconaghi said. Expectations for the current quarter are moderate and the company may simply wonder on battery day. Inventory also benefits from a strong value boost.
But several variables will put an end to the rampant stock jump. Bernstein said a widespread shift toward price stocks can also simply attract dollars from automotive investors after weeks of rushing into popular expansion names. Tesla’s deployment of the Model Y SUV can also cannibalize Model 3 sales, the analyst said. Even with the Cybertruck, Semi and New Tesla Roadster in progress, the new models may not yet have a 30% expansion in the coming years, Sacconaghi added.
Still, Bernstein presented a bullish argument for the stock that would put the stock at least 30% higher, at $2,000 each. Setting a target value at such high levels “forces the company to permanently reshape the automotive economy,” Sacconaghi said. This may be because Tesla has reached its target of 6 million deliveries through 2030 with an operating margin of 15%, while succeeding in its semi-use business and energy garage, he said. Profits can also be greater through increased adoption of Tesla’s autonomous driving software.
However, achieving such good fortune is unprecedented in the automotive industry. Features like autopilot tend to reduce their value over time. The operating margin objective is approximately twice that of other classic automakers. Unless Tesla can boast the same margins as Porsche while delivering millions more cars, the value of its inventory cannot increase, Sacconaghi said.
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