Tesla’s valuation plunged today as its stock fell firmly below the $1,000 level, touching as low as $953.14 per share. The stock fell by about 4%, which was a little worse than the pullback in the Dow Jones.
Morgan Stanley analysts said in a report that they believe Tesla's valuation at $1,000 a share ignores several major risks. GLJ analyst Gordon Johnson and Bernstein analyst Toni Sacconaghi also issued bearish reports on Tesla stock this week.
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Tesla's valuation at $1,000 a share
Morgan Stanley analyst Adam Jonas maintains his Underweight rating and $650 per share price target for Tesla stock and said he understands the attraction of Tesla's story. However, he also believes investors might have an opportunity to get into Tesla stock at a more attractive valuation. He added that while $1,000 per share is "plausible," it may also "ignore a host of execution/ market risks."
Tesla stock has been hovering at around $1,000 a share since hitting its record high of $1,025 earlier this month. Jonas believes interest in Tesla stock is coming from tech investors who believe the automaker's valuation is reasonable when thinking about the company alongside major tech names like Apple, Google and Amazon.
However, he also said thinking about Tesla as a tech stock requires investors to ignore some significant differences between the company's business model and the business models of those other tech companies. Additionally, he said it's important to consider the fact that Tesla's business objectives are up against much higher execution risk than what more mature tech companies face.
Jonas' price target assumes that Tesla will deliver more than 2 million vehicles per year by 2030 at an EBITDA margin of about 16.5%. At a valuation of $1,000 per share, he said Tesla is discounting about 4 million units.
Another bearish report
Jonas isn't the only one issuing bearish commentary on Tesla's valuation. GLJ analyst Gordon Johnson told Benzinga this week that he "couldn't be more bearish" on Tesla stock. He warned that investors should be prepared for weak second-quarter numbers.
Jonas described the company's accounting as "always tricky" because "they recognize a lot of things and they pull a lot of things forward." However, he also said that based on registration data in Colorado, which he said is the "most generous EV market," Tesla's sales in April and May are down 73%.
He also said that Tesla's valuation is "completely detached from reality." He added that Tesla's valuation is more than twice that of Volkswagen, which sold 10 million vehicles last year, compared to Tesla's 365,000.
Further, he said that Tesla CEO Elon Musk has repeatedly changed the goalpost for the automaker's success. First he said the Model S and Model X would dominate the luxury market, but he doesn't believe that happened. Then the Model 3 was supposed to take the company to profitability, but it hasn't posted an annual profit yet. He expects Tesla to lose money again this year.
Tesla's battery technology
Bernstein analyst Toni Sacconaghi said in his own report that Tesla's lead in battery technology isn't as wide as some think it is. He said many investors and analysts believe the company has a large lead in battery technology, which is a major part of any bull case for Tesla stock.
Better batteries allow Tesla to charge more for its cars than its peers can charge. They will also enable the automaker to reduce its costs compared to the price of gasoline-powered vehicles. That should boost electric vehicle adoption and continue to drive sales for Tesla.
However, Sacconaghi said Tesla's battery advantage is less clear compared to its competitors. He said the 400-mile range comes from better engineering rather than battery chemistry, which he believes is more easily copied by competitors.