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3 Reasons Tesla Stock Is Currently Overvalued

By Investing.com (Haris Anwar/Investing.com)Stock MarketsAug 03, 2021 08:22AM ET
www.investing.com/analysis/3-reasons-tesla-stock-is-currently-overvalued-200595598
3 Reasons Tesla Stock Is Currently Overvalued
By Investing.com (Haris Anwar/Investing.com)   |  Aug 03, 2021 08:22AM ET
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Summary:

  • After a remarkable rally last year, Tesla stock has lost its momentum.
  • The stock’s tepid reaction to impressive Q2 earnings shows that the bull case is weakening.
  • Chip shortages, rising competition could keep Tesla under pressure this year.

Lately, Tesla (NASDAQ:TSLA) shares seem to have lost their magic. The stock no longer reacts wildly to every positive development, disappointing investors who made fortunes while staying faithful to the world’s largest electric car-maker.

The latest example of this dampening optimism came when Tesla announced its quarterly earnings on July 26. The company’s shares fell more than 4% after the earnings report, which handedly beat analysts’ consensus estimates.

Tesla Weekly Chart.
Tesla Weekly Chart.

During the quarter, in which the California-based car-maker produced a record 201,250 vehicles, its profit more than tripled to $1.45 a share on an adjusted basis, beating the $0.97 average analysts had estimated. It was also the company’s eighth straight profitable quarter.

Tesla's net income in the second quarter was roughly equal to the prior four quarters combined. The company reported revenue of roughly $12 billion for the period that ended June 30, nearly double the amount in the corresponding period a year earlier.

Despite this strong earnings momentum, the stock didn’t jump the way it once did on every shred of positive news. TSLA is up less than 6% during the past five days as of yesterday's close. From its record high in January, Tesla shares are down almost 23%.

So, what’s prompting investors to shun this market tech darling, even when its financials have shown a great turnaround?

As we see it, there are both short- and long-term factors at play, causing Tesla enthusiasts to move to the sidelines. Here are three key catalysts that make this EV stalwart a risky bet right now, supporting our view that Tesla is not a buy in this environment:

1. Chip Shortages

The global chip shortages that have hurt production for many car-makers is beginning to pinch Tesla as well. During its earnings call, Tesla told investors that the company's future pace of growth won't be able to escape the ongoing supply-chain challenges.

The company, for example, is struggling to introduce new models and secure parts for all its vehicles. Tesla again delayed its semi-trailer truck—already two years late—with first deliveries now slated for 2022. The company attributed the delay to supply-chain issues and limited battery-cell supply, as well as trying to focus on getting new factories online.

The company’s plans for its first pickup truck, once expected to go to customers as early as this year, are also being affected by parts issues, said Chief Executive Elon Musk on an earnings call, without giving a revised first delivery date.

How long chip-supply issues will persist is anybody’s guess right now. Chip-makers are trying to eke out more supply through changes to manufacturing processes and by opening up spare capacity to rivals, auditing customer orders to prevent hoarding and swapping over production lines, according to a recent report by the Wall Street Journal. The bad news: there are no quick fixes, as building new production capacity usually takes years.

2. Competition Heating Up

Another threat challenging Tesla’s dominance in the EV market is coming from new sources of competition. Overall, five of the biggest automakers—Daimler (OTC:DDAIF), Ford (NYSE:F), General Motors (NYSE:GM), Stellantis (NYSE:STLA) and Volkswagen (OTC:VWAGY)—have each laid out plans to spend an average $6.5 billion annually on electrification efforts over the next five to 10 years, according to Bloomberg.

In April, VW launched its new Audi Q4 e-tron model to compete with Tesla in the fast-growing market of compact crossover SUVs. The Audi’s EV model is among a dozen vehicles the German auto-maker has planned, including VW’s ID.4 and an electric version of the Porsche Macan. VW is aiming to sell roughly 600,000 purely battery-powered cars this year.

While traditional auto-makers, like Volkswagen and GM accelerate their EV efforts, smaller Chinese upstarts like Nio (NYSE:NIO) and Xpeng (NYSE:XPEV) are also vying for tech-savvy customers.

According to media reports, GM’s EV plans will accelerate starting later this year as a Hummer pickup truck and Cadillac Lyriq sport utility vehicle begin rolling off the Detroit carmaker's production lines. An electric Chevy Silverado pickup is also on the way.

In China, GM’s lower-priced Hongguang Mini EV, which it’s producing with two state-owned companies, has been a hit. More than a quarter of a million of the models have been sold since the vehicle launched last July, outperforming international rivals like Tesla’s Model 3 and local competitors, including Great Wall's (OTC:GWLLY) Ora Black Cat.

3. Lofty Valuations

Tesla’s valuation has also been a major source of friction among Wall Street’s top analysts. Those who see Tesla as a highly overpriced stock argue that the company has no room to make an error when its stock is priced for perfection.

JPMorgan, which has an underweight rating on Tesla with a price target of $160, said in a recent note:

“Tesla’s high valuation leaves little room for less-than-perfect execution, as evidenced by a relatively tepid reaction in the aftermarket Monday to what was a fairly sizable EBITA beat, and we did see some less than perfect takeaways, including the official delay of the Tesla Semi into 2022 (albeit likely already almost entirely baked in); the seeming delay of the Cybertruck from late 2021 into 2022 (likely mostly baked in).”

Even after its recent selloff, Tesla has a $680-billion market capitalization, making it worth more than the combined value of GM, Ford, Toyota Motor (NYSE:TM) and Volkswagen.

Bernstein Research, which has a sell rating on Tesla with a price target of $175, said in its note:

“We continue to struggle to justify TSLA’s valuation, which is higher than all other major automakers combined and appears to imply huge volume and industry leading profitability going forward, which is historically unprecedented.”

These bearish views, however, shouldn’t hide the fact that many analysts believe Tesla is more than a car company and its stock has more upside.

Morgan Stanley’s Adam Jonas says Tesla shouldn’t be valued as a legacy car-maker. As cars become more connected to the internet, that opens up a lot of other addressable markets and Tesla is well-positioned to take advantage of those new opportunities.

Said Jonas in a Bloomberg report:

“In the process, it takes you away from comparing Tesla to car companies and should rather be compared to software-as-a-service companies.”

This divergence is evident from Investing.com poll of analysts regarding Tesla’s share price. Of 35 analysts, 15 have a buy rating on the stock, while 12 have neutral ratings and eight have a sell recommendation, with a 12-month consensus price target of $730.59.

Chart: Investing.com

For investors, who look to technical signals to help make short-term investment decisions, the most popular indicators—moving averages, oscillators and pivots—are currently providing a buy signal, especially after Tesla’s strong earnings beat.

Bottom Line

Tesla has remained the only credible player in the high-quality EV market in recent years, but that equation is changing quickly after the entry of new players and the massive spending plans being put forward by the legacy car-makers. These dynamics don’t justify the company’s current valuation, which assumes that Tesla will become the biggest seller of cars in the U.S., while competitors won’t be able to succeed.

3 Reasons Tesla Stock Is Currently Overvalued
 

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3 Reasons Tesla Stock Is Currently Overvalued

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Comments (27)
Hyde Setsuka
Hyde Setsuka Aug 13, 2021 12:55PM ET
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Let's see who win in 10 years, still hold my long from 2019 & i dare you to short TSLA for 10 years
Ferdinand Enario
Ferdinand Enario Aug 05, 2021 8:21PM ET
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Isnt Tesla the only car maker thats making money these days?
Meru Pet
Meru Pet Aug 05, 2021 8:21PM ET
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honda motor, ford motor, gm... Look i dont want to go through my whole list of car stocks, those are the first 3 and the have all a positive EPS
Meru Pet
Meru Pet Aug 05, 2021 4:56PM ET
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Dont underestimate the value of their dreams...
David Keller
David Keller Aug 05, 2021 9:54AM ET
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Chip shortages will likely become an endemic issue over coming years, TSLA is just one of the first to feel th pinch
동희 심
동희 심 Aug 05, 2021 6:31AM ET
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Tesla is no more electric car maker!!  They are software -AI-DeepLearning(Convolutional Neural Network), Solar Energy, Battery, Insurance, RoboTaxi, Robotics and Platform Based-Contents(entainment and advertisements) company!!!  Any legacy automakers can do these business models??  I think you  consider only  electric car side!!! Please enlarge your view points before your garbage report!!!
Meru Pet
Meru Pet Aug 05, 2021 6:31AM ET
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Tesla is may be a great company, but watch the video of a guy called thunderf00t on youtube, there is a lot to criticize and a lot of bad ideas too. The fact is: i see more and more Tesla in the street...
Loki Kan
Loki Kan Aug 03, 2021 8:05PM ET
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everyone is entitled to his opinion. so happy we have freedom of speech
동희 심
동희 심 Aug 03, 2021 7:21PM ET
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How stupid you are!!!!  Do you know deep learning? You seems to have been  sponsored by many legacy auto makers!!!!
동희 심
동희 심 Aug 03, 2021 7:21PM ET
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Maybe Your ability is equal to that of Gordon Jhonson!!!
John Kochkerian
John Kochkerian Aug 03, 2021 5:45PM ET
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Very flawed article. Primarily TSLA is NOT solely a car company. This guys was definitely paid off by the shorts. Why would he put out this article now while TSLA is breaking out? Did you even read and analyze the quarterly report? I suggest that you do and update your article
Ron Love
Ron Love Aug 03, 2021 5:45PM ET
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This author always writes fluff pieces for the shorts.
Jingyi Tsunami
Jingyi Tsunami Aug 03, 2021 5:45PM ET
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Short sqeeze us coming
Stephen Doou
Stephen Doou Aug 03, 2021 3:04PM ET
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this is so cool
Hemant Thakker
Hemant Thakker Aug 03, 2021 2:06PM ET
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Haris how much did you get paid for this from shorts...there earnings and sale...are really great... Tesla already have 1.2 million cyber truck pre booking....get a life....
Fabrizio Fusaro
Fabrizio Fusaro Aug 03, 2021 2:06PM ET
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Pre booked with 100$ and they will produce them by the end of 2040 maybe…
Ron Love
Ron Love Aug 03, 2021 2:06PM ET
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Fabrizio Fusaro Production starts Q1’22. The Model Y line at Texas will be ready by Q4. 🙄
Lang Qin
Lang Qin Aug 03, 2021 1:35PM ET
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in 1999, shorters shorted amazon, reason was: amazon worth more than all book stores combined, didn't make sense. They did make some money back then tho but very laughable reason if you look at it today.
Keyur Patel
Keyur Patel Aug 03, 2021 1:25PM ET
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Euphoria take time before it hit wall of reality... JPM target $160-175 can achieve once bear operators take charge untill then enjoy euphoria of retailers
avi bahar
avi bahar Aug 03, 2021 1:20PM ET
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Who paid for your artical? Ford?GM?
Debt Deflation
Debt Deflation Aug 03, 2021 1:20PM ET
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Ad hominem fallacy: you failed to address the arguments, while attacking the man.
Jarryd Carlsson
Jarryd Carlsson Aug 03, 2021 1:18PM ET
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You are really dum arent you. If you even believe what you write, then short the stock lmao
Deborah Schwebius
Deborah Schwebius Aug 03, 2021 1:17PM ET
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Tesla is not just a car company… you are so narrow minded or perhaps you are purposefully ignorant… people writing misinformed stories like yours are why it Tesla is undervalued… good for us Tesla investors… we have more time to buy before the true valuation becomes so apparent no one can pretend it is anything other than a huge disruptor and massively successful company. We
Ralph Sueptitz
Ralph Sueptitz Aug 03, 2021 1:17PM ET
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they produce cars. not the worst, but also not the best. they are a car company. some of the investors start to recognize this. and also in future dream themes as autonomic driving meanwhile other companies are leading. stop dreaming of Tesla robo-taxis, others are already on the street.
John Kochkerian
John Kochkerian Aug 03, 2021 1:17PM ET
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What about their energy business? Charging station business which other car companies are going to pay to use? Data business? Insurance business. Buddy if you are not well versed in TSLA, I suggest you sit on the bench and watch from the sidelines
chinagolueloke eloke
chinagolueloke eloke Aug 03, 2021 1:08PM ET
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thanks so much
Joe Barscewski
Joe Barscewski Aug 03, 2021 1:07PM ET
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Why don’t you go ahead and try to short it, better man than you have tried.
simone scelsa
simone scelsa Aug 03, 2021 1:07PM ET
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Burry is making tons from his Tesla short.
Ha Phan
Ha Phan Aug 03, 2021 1:06PM ET
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Is this a joke?
Prasanna Sharma
Prasanna Sharma Aug 03, 2021 1:06PM ET
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i have 99 reasons why world market is overvalued...lets prove it with valid reasons and calculations if you are that sure about your so called theoretical analysis
Fabrizio Fusaro
Fabrizio Fusaro Aug 03, 2021 1:06PM ET
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Man what calculation do you need? The company has “record earnings” of 1.5$ per share but is already in the top 5 market cap in the world. Even if the selfdriving was already there (and it isn’t) and it was already market leader (and it isn’t…less then 2% total car market share) would have been overvalued. Right price 200$ but just because there’s a potential growth…
Ching Tu
Ching Tu Aug 03, 2021 1:06PM ET
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Soemthing else we dont know?
Alessandro Amorim
Alessandro Amorim Aug 03, 2021 1:06PM ET
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He is short in tesla.
John Tenaglia
John Tenaglia Aug 03, 2021 1:05PM ET
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No way. Just watch.
FRANCISCO JOSE CABAÑAS
FRANCISCO JOSE CABAÑAS Aug 03, 2021 1:05PM ET
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Currently?
my name
my name Aug 03, 2021 12:10PM ET
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always was...
Glenn Ebersole
Glenn Ebersole Aug 03, 2021 10:04AM ET
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No kidding
 
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