Recent revelations about Tesla Inc.'s (TSLA, Financial) surprisingly low quarterly sales have investors pondering a critical question: With rapid growth potentially behind it, how should Elon Musk’s flagship be valued?
The substantial miss in Tesla's first-quarter vehicle deliveries compared to Wall Street forecasts has ignited debates about the electric vehicle leader's future revenue and earnings growth expectations. The shortfall raises questions about whether the market's high expectations are already factored into Tesla's ambitious valuation.
Nicholas Colas from DataTrek Research comments on the lack of clarity regarding Tesla's future growth avenues, be it in electric vehicles or other ventures. He notes that commanding a premium valuation requires clear earnings visibility or a compelling growth narrative, both of which Tesla currently lacks.
Concerns intensified when reports emerged suggesting Tesla was scrapping plans for more affordable EVs, deemed crucial for addressing its demand challenges. This news sent Tesla's stock plummeting over 6%, although a subsequent denial from Musk on his social media platform, X, somewhat mitigated the losses. Musk also teased the unveiling of a "robotaxi" model on August 8, sparking a brief rally in after-hours trading.
Experts like Gary Black from Future Fund Advisors argue that Tesla's focus should be on a $25,000 compact vehicle to remain competitive, highlighting the risks of prioritizing a robotaxi at this juncture.
The stock's 34% decline since the beginning of the year underscores its struggle, marking it as a significant drag on the Nasdaq 100 and the worst performer on the S&P 500. Despite this, about 76% of Tesla's valuation still hinges on its future earnings potential, as per DataTrek's analysis.
JPMorgan analyst Ryan Brinkman cautions that Tesla's shares could face further declines if the company fails to quickly revive its unit volume and revenue growth. This comes as Tesla's vehicle sales for the first quarter fell significantly short of analyst predictions, necessitating a revision of profit estimates downwards and setting the company on a path for potentially another year of declining annual earnings.
Despite being the priciest stock among the Magnificent 7 tech giants at 59 times forward earnings, Tesla's growth estimates lag behind its peers. This discrepancy has contributed to its position as the biggest decliner in the Bloomberg Magnificent 7 Price Return Index for 2024.
While the market was caught off-guard by Tesla's sales issues, the company had previously signaled a slowdown in demand. This mismatch in expectations versus reality indicates a broader misunderstanding of the EV market's growth trajectory among analysts.
However, Tesla shares could see a short-term rebound as investors begin to see value at lower prices. Technical analysts suggest the stock is nearing a potential bottom, indicating the sell-off might be easing. Yet, for a sustained recovery, Tesla must convincingly demonstrate its ability to return to robust growth and innovation.
David Mazza from Roundhill Investments points out the difficulty in predicting a turnaround without a clear catalyst. He suggests that Musk's recent teaser about a robotaxi could be an attempt to reignite investor enthusiasm, but stresses the need for concrete developments in Tesla's core EV business to truly stabilize the stock.
