Bernstein analyst Toni Sacconaghi raised on Monday his Tesla’s price target by 50% to $450 from $300. The price target implies a downside of 44% from current levels related to concerns with Tesla’s valuation and business fundamentals. The stock is currently trading at $836, up +3.34% on the day (as of 10.13 EST). Read the full statement below.
“One obvious justification for TSLA’s valuation is its unique growth profile, which stands out, even among tech companies. In fact, based on comparables with other high priced, growth stocks, Tesla’s valuation is arguably not unreasonable. That said, we note that (1) despite the recent pull back, tech stock valuations are still elevated vs. history, and (2) Tesla’s growth comparables typically have much higher margins and are arguably less cyclical than automotive companies.
We are raising our TP to $450 by looking at three valuation methodologies: () comps, including growth versus P/FE, growth versus P/FCFE and margins versus P/S; (i) our updated 2050 DCF: (il) an optimistic near term scenario (the blue sky case), where Tesla continues to grow at a similar rate for 5+ years.
We note that Tesla’s margins going forward will be a key factor determining the company’s valuation. One way to justify the current valuation is to assume Tesla can have a sustainable margin at ~30%. Bulls argue that full self-driving (FSD) capability and other software offerings will drive sustained high margins for Tesla. We believe that FSD pricing will ultimately be largely competed away over time.
Bulls argue that Tesla deserves a higher valuation for optionality value. We believe that FSD pricing will ultimately be largely competed away over time and might add $110 per share if Tesla is able to hold a multiyear advantage. Through fundamental DCF analysis and comparisons to Uber/Lyft and PGR, we value other opportunities (Robo taxis, energy storage & insurance) at -$100 per share collectively under optimistic assumptions.”
Last week, Daiwa Securities analyst Jairam Nathan upgraded Tesla’s rating to Outperform from Neutral with a price target of $900, down from $980. The analyst says renewed supply chain concerns combined with higher oil prices enhance Tesla’s competitive advantage over legacy internal combustion engines. Tesla’s ability to export out of “cost-efficient” China and its history of better managing chip shortages in 2021 could strengthen its competitive position under the current Russia/Ukraine situation, Nathan tells investors in a research note. Further, higher oil prices and the potential of fuel shortages, especially in Europe, could accelerate the shift to electric vehicles, adds the analyst.
According to Reuters, Tesla Inc plans to start work on a new plant in Shanghai as soon as next month as part of a plan to more than double production capacity in China to meet growing demand for its cars in the country and export markets, two people familiar with the matter told Reuters.
With this new plant, Tesla will have the capacity to produce up to 2 million cars per year at its expanded Shanghai facility, the company’s main export hub, according to the people, who asked not to be identified in discussing still-private plans.