Elon Musk is counting on full-self driving and other new technologies and vehicles at Tesla Inc. continue to drive the electric carmaker’s value far beyond its automotive rivals.
Some analysts and investors worry that Tesla’s industry-leading market valuation is threatened by factors including price cuts that have undermined its margins, delays in rolling out new models and revisions to its full self-driving software.
“Tesla faces an increasingly uphill battle to secure its competitive position, which makes its current valuation look even more unrealistic,” said David Trainer, CEO of investment research firm New Constructs. “The Tesla bull case has centered around the company’s growth goals, which it is failing to meet.”
Tesla’s stock, which dropped 9.75 percent to $162.99 on Thursday, is valued at about 43 times expected earnings, down from astronomical levels above 200 times in 2021, according to Refinitiv data. Even after that drop, the company’s valuation remains several times higher than the multiples of legacy carmakers, with Ford Motor Co, trading at about 8 times expected earnings and General Motors Co. trading at under 6.
Tesla on Wednesday doubled down on the price war it started at the end of last year, as Musk said the company would prioritize sales growth ahead of profit. In the first quarter, Tesla posted its lowest quarterly gross profit margin in two years.
“The market wants to see that Tesla management has a tangible plan to boost automotive gross margins and companywide operating profit margins over the coming quarters and in the next year or so,” said Morningstar analyst Seth Goldstein. “I also think the market wants to see a growth plan that does not involve continuous price cuts.”
Musk brushed aside those fears on Wednesday, saying the company this year would likely achieve full self driving and that would be a big profit generator. Musk has missed his previous targets to achieve self-driving capability, dating back years.
Tesla now sells the full self-driving software, which does not make the vehicle autonomous, for $15,000.
Other key products expected from Tesla include the Cybertruck pickup later this year, as well as a lower-cost car that is expected in late 2024 or early 2025. Longer-term, Tesla believes robots could be a bigger profit generator than EVs.
Star stock picker Cathie Wood’s Ark Invest on Thursday predicted Tesla’s shares would reach $2,000 by 2027, driven up over 1,100 percent from current levels by Musk’s plan to launch a fleet of robotaxis. Tesla is the Ark Innovation ETF’s top holding, and the investment firm’s previous Tesla predictions have raised eyebrows among many investors.
Evangelos Simoudis, a technology adviser, author and investor, believes Tesla may have “an even bigger opportunity” in energy generation and storage with its solar panels and Powerwall battery systems.
Not only is Tesla viewed as the gold standard in the auto sector, but many see it as more of a tech stock. Canaccord Genuity analyst George Gianarikas compared Tesla favorably to such tech stocks as Alphabet Inc., Meta Platforms Inc., Nvidia Corp. Apple Inc., Microsoft Corp. and Amazon.com Inc.
“If you look at the growth rates for Tesla versus those companies, Tesla is growing its revenue significantly more than their EBITDA, and so we feel like it’s incredibly compelling relative to those companies because you’re paying not only a lower PE but also you get better growth,” said Gianarikas.