Is Tesla Overpriced Now?
πππTesla $Tesla Motors(TSLA)$
Ever since Donald Trump's astounding win in the US Presidential Election, Tesla's shares have been on a tear. Elon Musk has staunchly supported Trump and his efforts are now being rewarded.
On Monday, news broke that the new Trump administration is planning to prioritise fully self driving (FSD) vehicles within the Transportation Department. While it is unclear what specific action the Transportation Department will take to boost FSD, supportive measures towards FSD would be good for Tesla.
Tesla's unveiling of its Robotaxi on October 10 was not well received as it does not provide specific details on Tesla's execution plans in regards towards FSD.
Despite a favourable regulatory outlook, Tesla still faces significant technological and production challenges. After years of substantial R&D investments, Tesla's FSD system continues to encounter major issues.
In October the NHTSA launched another investigation into the FSD feature following reports of 4 crashes which includes 1 fatal accident. The report highlighted the system's failure to respond to poor visibility conditions.
Tesla's FSD system has also experienced recalls, such as one affecting over 2 million vehicles in December 2023. These challenges persist even as Tesla's capital expenditures have surged to nearly USD 11 billion on a 12 month basis. There was a significant portion allocated to the Dojo supercomputer which trains AI models to enhance FSD capabilities.
Tesla has also faced challenges with rising competition and high interest rates impacting its growth with its automotive revenue increasing by just 2% in Q3 24.
However the market is beginning to factor in Tesla's next growth phase as Tesla is expected to start production of its Model 2. Model 2 is a more affordable mass market EV which is expected to start production in the first half of 2025.
While there is much skepticism surrounding Tesla's Robotaxi plans and Autonomous Vehicles, the Model 2 launch could be followed by the Cybercab launch in 2026. If successful, then Tesla's growth rates could see a significant boost in the next 2 years.
Tesla's Price to Earnings (P/E) ratio is 92.66. In contrast $BYD COMPANY(01211)$
Tesla is into Energy Storage as Tesla sells battery storage products to utilities and has an energy storage business that has seen record revenue and profit. Tesla also owns the patent for the Supercharger and operates its own network of charging stations.
Tesla is investing in AI and Robotics to improve vehicle production.
Wall Street Analyst Adam Jonas of Morgan Stanley said that Tesla could reach a market value of USD 1.6 Trillion if his bull case for Tesla comes to fruition and Elon Musk's involvement with the new Trump administration allows repricing of its AI ambitions.
Jonas reiterated his overweight rating on Tesla which could take Tesla's share price to USD 500, a huge 43% advance from its current levels and that would peg its market value at around USD 1.6 trillion.
Dan Ives of Wedbush believes that Tesla is the most undervalued AI play in the market. He predicts that Tesla will launch an affordable EV priced under USD 30,000.
In contrast Morningstar believes that Tesla's stock is overvalued. Despite Tesla's leadership in the EV market and ongoing innovation in energy solution, Morningstar believes that much of Tesla 's future growth potential is already priced in. Their "Underperform" rating is based on the belief that Tesla' s growth rate may slow as competition intensifies and as Tesla faces challenges in scaling production efficiently.
I believe that Tesla's current upward momentum is based on market optimism and FOMO mentality. There is no question in my mind that Tesla is a great company but I believe that it is overhyped and overvalued.
The other concern I have is Tesla's performance in China. Tesla has a big Gigafactory in Shanghai and is partnering with $Baidu(BIDU)$
In September 2024, Tesla sold 72,200 EVs in China, a new year todate high. This has contributed 39% of Tesla's global deliveries for the quarter. My concern is how will Elon Musk's close ties with Donald Trump affect Tesla's sales in China. Geopolitical risks such as trade tensions or regulatory changes could also weigh on Tesla's outlook.
So for now I will wait and see as Tesla's share appears to be priced for a growth trajectory that may be difficult to achieve in the face of rising competition and market uncertainties.
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Any plans for your next trade?
It's definitely overvalued
Stay cautious.