Investor's Corner

Tesla (TSLA) bear refuses to change his $87 price target

(Photo: Andres GE)

Tesla (NASDAQ: TSLA) stock has a healthy combination of both bulls and bears, enthusiasts and skeptics, long-holders and short-sellers. However, Gordon Johnson of GLJ Research is sticking with an $87 price target for the electric automaker, and he refuses to change it until the end of 2021.

Johnson is CEO of GLJ, and he is skeptical of Tesla’s surge toward the ranks of some of the most prestigious stocks to own on Wall Street today. He believes it so much that he is unwilling to change his price target for Tesla, which would incite a nearly 95% downside from the company’s current price per stock. At the time of writing, TSLA is trading at $2,008.04.

“In a nutshell, Tesla is essentially a busted growth story. I know that sounds crazy to people looking at the stock,” he said to Yahoo Finance’s the First Trade.

Johnson’s argument for TSLA being overvalued is based on production rates and sales figures, and not about technology or vehicle efficiency. Nor does his analysis of the electric automaker’s stock take into account that Tesla also is competitive in the sustainable energy market.

“It’s trading at more than double VW’s market cap, yet VW sold 11 million cars last year. Tesla sold just under 370,000 cars last year, looking to sell roughly 500,000 cars this year,” Johnson said.

Tesla only had one vehicle manufacturing plant that was fully operational for consumer sales at the end of 2019. Volkswagen had 125.

Breaking it down in terms of output per plant, Volkswagen manufactured and sold 88,000 vehicles per production facility. Tesla sold and delivered 367,500 with its one facility.

Tesla has been delivering a mass-market vehicle since 2017 with the Model 3 and has only been in the automotive business for seventeen years. Volkswagen, on the other hand, was founded in 1937.

The market is changing, and consumers are focused on more sustainable forms of transportation. The widespread appeal of Tesla electric vehicles in the United States and China has contributed to the company’s success, but even that isn’t enough for Johnson to change his mind. He believes the acceptance of Tesla in China is not as impressive as some analysts, like Dan Ives of Wedbush, make it seem.

“The reality is in the month of July, they sold about 11.4 thousand cars in China. They produced about 12.2 [thousand], so they actually built inventory, and that’s despite a price cuts globally this year, four of which were in China,” Johnson added.

However, Tesla is only manufacturing one vehicle in China: the Model 3. It will soon begin producing the Model Y as well, but construction on that portion of the facility is currently in progress. Giga Shanghai is expected to start building the Model Y in early 2021.

Johnson is willing to keep his price target and believes the stock will go down when data “matches up.”

“The real data doesn’t match up. We think once that matches up, you’re going to have selling, which we think will drive the stock lower,” he said.

Tesla’s stock has risen 385% so far in 2020, and its valuation has skyrocketed due to technology developments and increases in demand.

Disclosure: I have no ownership in shares of TSLA and have no plans to initiate any positions within 72 hours.

Tesla (TSLA) bear refuses to change his $87 price target
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