Investor's Corner
Tesla stock (TSLA) splits Wall St. as analysts weigh in on Model 3 sustainability
Tesla stock (NASDAQ:TSLA) has been characteristically volatile, to the point where CEO Elon Musk boldly declared during the company’s Q1 2018 earnings call that people who fear volatility should not invest in the company. With Tesla recently announcing the date of its Q2 2018 financial results and earnings call, the electric car maker is once more dividing Wall Street down the middle, with bulls and bears both reiterating their stance on the company’s performance.
Mott Capital Management LLC founder Michael Kramer recently noted that Tesla’s investors should prepare themselves for a wild ride, as his firm expects the company’s shares to rise or fall by as much as 17% over the next two months. According to Kramer, Tesla stock would likely trade anywhere between $265 to $375 over the next ~65 days. The Mott Capital founder also estimates that Tesla’s September options would likely see a lot of implied volatility on September, at roughly 50% — almost five times greater than the S&P 500’s implied volatility of 10%.
A key factor that would determine Tesla’s performance in the stock market for the next few months would be the Model 3 — a vehicle that Elon Musk aptly dubbed as a “bet-the-company” project. With Tesla attaining its Q2 2018 production target of manufacturing 5,000 Model 3 per week by the end of June, the electric car maker appears to be suggesting that its self-imposed “production hell” is about to end.
In a recent note, Argus Research analyst Bill Selesky backed the firm’s Buy rating for Tesla, placing a price target of $444 (a +36% upside potential) for the company’s stock. According to Selesky, Argus’ positive stance stands on an optimistic outlook for revenue gains from the Model S and X, as well as strong demand for the Model 3 sedan. The analyst further noted that while Tesla’s production figures for the Model 3 during the first quarter fell below its expectations, Argus believes that the company would show an improvement in the second quarter. Finally, Selesky stated that Model 3 production costs would likely diminish next year, enabling Tesla to achieve a healthy gross margin for the vehicle in late 2019.
“Although first quarter production of the Model 3 fell short of our forecast and management’s guidance, the company recently reached its 5,000 per week production target. As such, we expect significant sequential improvement in the second quarter. We expect the company to achieve its target gross margin of 25% on the Model 3 in late 2019, in line with the margins already achieved on the Model S and Model X,” Selesky wrote.
Needham & Co’s Rajvindra Gill, however, released a note downgrading Tesla to a Sell, citing an uptick in cancellations for Model 3 orders. According to the analyst, Needham’s estimates suggest that Tesla’s refund rate for the Model 3 has outpaced deposits for the electric car.
“Based on our checks, refunds are outpacing deposits as cancellations accelerate. The reasons are varied: extended wait times, the expiration of the $7,500 credit, and unavailability of the $35k base model. In August ’17, TSLA cited a refund rate of 12%. Almost a year later, we believe it has doubled and outpaced deposits. Model 3 wait times are currently 4-12 months, and with base model not available until mid-2019, consumers could wait until 2020,” the analyst wrote.
Since the beginning of July, Tesla appears to have gone all-in on the Model 3, pushing the vehicle to buyers through test drive programs and initiatives such as a 5-minute Sign & Drive delivery system. Signs over the past weeks also indicate that Tesla is all but accelerating its Model 3 push for the third quarter, with more than 19,000 new VINs filed so far in July, and a 19% increase in hiring activity since the month started. A vote of confidence for the company’s profitability also came recently from Detroit, after teardown specialist Sandy Munro stated that the Model 3’s Long Range RWD variant could give Tesla a 36% profit. Munro also estimates that the $35,000 base Model 3 could still give the electric car maker a profit of 18%.
Disclosure: I have no ownership in shares of TSLA and have no plans to initiate any positions within 72 hours.
Elon Musk
Tesla CEO Elon Musk’s $1 trillion pay package hits first adversity from proxy firm
ISS said the size of the pay package will enable Musk to have access to “extraordinarily high pay opportunities over the next ten years,” and it will have an impact on future packages because it will “reduce the board’s ability to meaningfully adjust future pay levels.”
Tesla CEO Elon Musk’s $1 trillion pay package, which was proposed by the company last month, has hit its first bit of adversity from proxy advisory firm Institutional Shareholder Services (ISS).
Musk has called the firm “ISIS,” a play on its name relating it to the terrorist organization, in the past.
“ISIS”
— Elon Musk (@elonmusk) September 27, 2021
The pay package aims to lock in Musk to the CEO role at Tesla for the next decade, as it will only be paid in full if he is able to unlock each tranche based on company growth, which will reward shareholders.
However, the sum is incredibly large and would give Musk the ability to become the first trillionaire in history, based on his holdings. This is precisely why ISS is advising shareholders to vote against the pay plan.
The group said that Musk’s pay package will lock him in, which is the goal of the Board, and it is especially important to do this because of his “track record and vision.”
However, it also said the size of the pay package will enable Musk to have access to “extraordinarily high pay opportunities over the next ten years,” and it will have an impact on future packages because it will “reduce the board’s ability to meaningfully adjust future pay levels.”
The release from ISS called the size of Musk’s pay package “astronomical” and said its design could continue to pay the CEO massive amounts of money for even partially achieving the goals. This could end up in potential dilution for existing investors.
If Musk were to reach all of the tranches, Tesla’s market cap could reach up to $8.5 trillion, which would make it the most valuable company in the world.
Tesla has made its own attempts to woo shareholders into voting for the pay package, which it feels is crucial not only for retaining Musk but also for continuing to create value for shareholders.
Tesla launched an ad for Elon Musk’s pay package on Paramount+
Musk has also said he would like to have more ownership control of Tesla, so he would not have as much of an issue with who he calls “activist shareholders.”
Investor's Corner
Barclays lifts Tesla price target ahead of Q3 earnings amid AI momentum
Analyst Dan Levy adjusted his price target for TSLA stock from $275 to $350, while maintaining an “Equal Weight” rating for the EV maker.
Barclays has raised its price target for Tesla stock (NASDAQ: TSLA), with the firm’s analysts stating that the electric vehicle maker is approaching its Q3 earnings with two contrasting “stories.”
Analyst Dan Levy adjusted his price target for TSLA stock from $275 to $350, while maintaining an “Equal Weight” rating for the EV maker.
Tesla’s AI and autonomy narrative
Levy told investors that Tesla’s “accelerating autonomous and AI narrative,” amplified by CEO Elon Musk’s proposed compensation package, is energizing market sentiment. The analyst stated that expectations for a Q3 earnings-per-share beat are supported by improved vehicle delivery volumes and stronger-than-expected gross margins, as noted in a TipRanks report.
Tesla has been increasingly positioning itself as an AI-driven company, with Elon Musk frequently emphasizing the long-term potential of its Full Self-Driving (FSD) software and products like Optimus, both of which are heavily driven by AI. The company’s AI focus has also drawn the support of key companies like Nvidia, one of the world’s largest companies today.
Still cautious on TSLA
Despite bullish AI sentiments, Barclays maintained its caution on Tesla’s underlying business metrics. Levy described the firm’s stance as “leaning neutral to slightly negative” heading into the Q3 earnings call, citing concerns about near-term fundamentals of the electric vehicle maker.
Barclays is not the only firm that has expressed its concerns about TSLA stock recently. As per previous reports, BNP Paribas Exane also shared an “Underperform” rating on the company due to its two biggest products, the Robotaxi and Optimus, still generating “zero sales today, yet inform ~75% of our ~$1.02 trillion price target.” BNP Paribas, however, also estimated that Tesla will have an estimated 525,000 active Robotaxis by 2030, 17 million cumulative Optimus robot deliveries by 2040, and more than 11 million FSD subscriptions by 2030.
Investor's Corner
BNP Paribas Exane initiates Tesla coverage with “Underperform” rating
The firm’s projections for Tesla still include an estimated 525,000 active Robotaxis by 2030.
Tesla (NASDAQ: TSLA) has received a bearish call from BNP Paribas Exane, which initiated coverage on the stock with an Underperform rating and a $307 price target, about 30% below current levels.
The firm’s analysts argued that Tesla’s valuation is driven heavily by artificial intelligence ventures such as the Robotaxi and Optimus, which are both still not producing any sales today.
Tesla’s valuation
In its note, BNP Paribas Exane stated that Tesla’s two AI-led programs, the Robotaxi and Optimus robots, generate “zero sales today, yet inform ~75% of our ~$1.02 trillion price target.” The research firm’s model projected a maximum bull-case valuation of $2.7 trillion through 2040, but after discounting milestone probabilities, its base-case valuation remained at $1.02 trillion.
The analysts described their outlook as optimistic toward Tesla’s AI ventures but cautioned that the stock’s “unfavorable risk/reward is clear,” adding that consensus earnings expectations for 2026 remain too high. Tesla’s market cap currently stands around $1.44 trillion with a trailing twelve-month revenue of $92.7 billion, which BNP Paribas argued does not justify Tesla’s P/E ratio of 258.59, as noted in an Investing.com report.
Tesla and its peers
BNP Paribas Exane’s report also included a comparative study of the “Magnificent Seven,” finding Tesla’s current market valuation as rather aggressive. “Our unique comparative analysis of the ‘Mag 7’ reveals the extreme nature of TSLA’s valuation, as the market implicitly says TSLA’s 2035 earnings (~55% of which will be driven by Robotaxi & Optimus, w/ zero sales now) have the same level of risk & value-appropriation as the ‘Mag 6’s’ 2026 earnings,” the firm noted.
The firm’s projections for Tesla include an estimated 525,000 active Robotaxis by 2030, 17 million cumulative Optimus robot deliveries by 2040 priced above $20,000 each, and more than 11 million Full Self-Driving subscriptions by 2030. Interestingly enough, these seem to be rather optimistic projections for one of the electric vehicle maker’s more bearish estimates today.
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