Tesla’s stock is worth more than that of Ford, General Motors, Toyota, Volkswagen and Stellantis combined. Even though Tesla is an automaker, it’s valued as more of a tech company, with a share price that puts it in the camp of companies like Apple, Nvidia and Microsoft.
But that share price took a hit this week after the company reported declining auto gross margins in the second quarter. Tesla’s stock closed $291.26 Wednesday after reporting earnings but has since fallen to $261.56 at the time of this writing.
Tesla’s once-robust margins have been in steady decline since Q2 2022, but fell under 20% for the first time in years during the first half of 2023. Tesla reported margins of 18.2% in the second quarter, a result of the automaker’s many price cuts across all models and markets.
CEO Elon Musk has attributed the discounts to lower demand in an uncertain economic environment, but analysts also see headwinds in supply chain issues and increasing competition.
With the stock price continuing to tumble, bears say Tesla’s share price is starting to reflect the reality of the company: Tesla talks a big game, but in the end, it’s just an automaker with automaker problems.
“They’re a metal bender like everybody else,” Kevin Tynan, senior automotive analyst at Bloomberg Intelligence, told TechCrunch+. “The bulls want you to believe that Tesla is somehow a different kind of company and it deserves a different valuation more like what you would afford to a tech company. But the reality is, it has automaker margins now. It has automaker problems and automaker cyclicality in its core business.”
Bulls, however, argue that Tesla’s value isn’t in its cars but in its AI and future of full self-driving. If Tesla drops the price of cars in order to boost sales, then that means more Teslas out there collecting data for the company.
“You can think of every car that we sell or produce that has full autonomy capability as actually something that, in the future, may be worth as much as five times what it is today,” Musk said during Wednesday’s earnings call.
Musk has often spoken of his dream of turning Teslas into robotaxis. Last year, he said owners would one day be able to have the choice to use the vehicles themselves or add their cars to a robotaxi fleet to earn money when they don’t need them — some kind of combination of Uber and Airbnb.
But that reality hinges on whether Tesla can actually achieve full self-driving using only computer vision, rather than the cocktail of sensors other autonomous vehicle companies rely on. Musk has been promising that Tesla would achieve full self-driving for years and still isn’t there.
It also depends on whether regulators will allow private autonomous vehicles on roads. In other words, there are a lot of maybes here, and even Musk himself has admitted that without full self-driving, Tesla is worth nothing.
Musk on Wednesday called himself “the Boy Who Cried FSD,” an acknowledgment of the many, many times he has promised to deliver full self-driving by a certain date. Among other unfulfilled promises, in 2019, the executive said Tesla would launch a robotaxi network by 2020, which obviously didn’t happen (and still hasn’t). And during Tesla’s first quarter 2022 earnings call, Musk said Tesla would bring a dedicated robotaxi with no steering wheel or pedals by 2024. The jury’s still out on that last one, but we’d bet against it.
So if Musk has a reputation for building amazing electric vehicles but also making technology-focused promises that he can’t deliver on, why is Tesla’s stock still valued so high?
What should Tesla stock be worth?
If we look at raw revenue numbers, Tesla’s stock price doesn’t exactly match its output.
In 2022, Tesla reported $81.5 billion in revenue, most of which came from pure auto sales. Ford, in comparison, pulled $158 billion. General Motors reported $157 billion. Toyota reported $267 billion . . . you get the point.
Some might say that Tesla’s revenue comes entirely from EVs, whereas the other automakers that have only recently started making EVs are doing so at a loss.
“Because nobody else is profitable and hasn’t done it, there’s this perception that Tesla has the ability to do things that other automakers can’t,” Tynan said. “Where really, the moat around their business was that they were well-funded for doing this unprofitably, and nobody else wanted to do it. There is no competition, but it’s not because they’re smarter than anybody or they have robots. It’s because the other automakers don’t want to run into a cash- and profit-burning building. And Tesla has been rewarded for that for over a decade.”
It’s important to remember that Tesla, which went public in 2010, didn’t turn a full-year profit until 2020. Until then, the company had been operating at a net loss and spending large sums on R&D.
Analysts and investors who are bearish on Tesla have come up with a range of stock price valuations for Tesla over the years. After the automaker’s latest earnings showed deteriorating margins and decreased demand, David Trainer, CEO of investment research firm New Constructs, said Tesla should be worth just $26 per share.
Craig Irwin of Roth Capital Partners gave Tesla an $85 price target after the Q2 report. Irwin said that the increased competition in the EV space will make it harder for Tesla to see the growth and margins (as high as 29% in Q1 2022) it has achieved in the past. And on a relative basis, the importance of AI to Tesla is moderate, he said, noting that Tesla’s FSD has already had a range of performance issues that caused the National Highway Traffic Safety Administration to issue a recall.
Citi analyst Itay Michaeli gave Tesla a $278 price target, noting that the future role of AVs was heavily emphasized on the call, which aligns with his view that AVs and AI are the biggest value unlock for Tesla.
In April, Ark Invest said it expects Tesla’s share price to be worth $2,000 by 2027, largely for the same reasons. After Q2 earnings, the fund dumped over $8 million worth of Tesla stock but didn’t change its long-term outlook on the company.
The Cult of Musk
Tesla isn’t the only automaker with an impressive advanced driver assistance system. Ford’s latest version of BlueCruise offers drivers a hands-free experience and automatic lane changes on highways, and Mercedes is gearing up to sell vehicles in California with hands-free, eyes-off automated driving features. And in China, Xpeng has launched XNGP, its own ADAS that automates driving tasks on highways and city streets.
But Tesla has the strategic advantage of being run by Elon Musk, the celebrity billionaire with a cult-like following on social media. When Musk says Tesla is building a humanoid robot, the Tesla bros think it’s a breakthrough that only Musk could pull off — despite a number of robotics companies and even automakers that have built their own similar bots.
Now that Musk owns Twitter, the platform on which he’s a prolific contributor, his influence is even greater. Tesla maybe doesn’t even have to deliver on its self-driving goals. At least, not just yet. As long as people continue to believe in Musk and his mission, the stock will hold its value.
Comment