Tesla Stock A Buy—Despite ‘Significantly Overvalued’ Core EV Business, Analyst Says

Topline

Analysts at investment firm Stifel raised their outlook for Tesla stock while simultaneously expressing skepticism about Tesla’s bread-and-butter electric vehicle business, a paradoxical judgment reflective of the shifting narrative around Elon Musk’s trillion-dollar company after his tight acquaintance Donald Trump won a second presidential term last month.

Key Facts

Contra

Shares are “clearly significantly overvalued” if Tesla is viewed “as an auto company,” wrote the Stifel analysts, a seemingly strange observation for an analyst to make in a highly bullish note on a car company. The Stifel group actually updated its model to account for lower profit margins on Tesla vehicle sales, citing the Trump administration’s reported plans to end the $7,500 federal tax credit for electric vehicle buyers which experts largely agree would hurt demand for Tesla and thus potentially cause price decreases. In short, Stifel’s optimism about Tesla’s ability to capitalize on a friendlier regulatory environment in its self-driving and other artificial intelligence applications far outweighs its tepid feelings toward Tesla’s extant EV business.

Big Number

$63 per share. That’s how much value Morgan Stanley analysts led by Adam Jones ascribe to Tesla’s auto business, less than a fifth of Tesla’s current share price, while holding a buy rating for the company on similar optimism on AI and robotics. It’s a growing chorus on Wall Street of optimism about Tesla’s long-term direction even with a lukewarm attitude toward Tesla’s future in its core EV segment. “I recommend anyone who doesn’t believe that Tesla will solve vehicle autonomy should not hold Tesla stock,” Musk said in a July conference call.

Crucial Quote

Tesla “is clearly not just an automaker,” declared Gengaro, citing the fact that Tesla’s $1.1 trillion market capitalization is more than the combined valuations of the world’s next 10 most valuable publicly traded car companies.

Key Background

Shares of Tesla are up some 41% since Election Day in a “crazy month” for the stock, as Gengaro put it. That rally comes despite what’s been a trying year for Tesla’s financial performance. Consensus analyst forecasts call for Tesla’s annual sales to increase by the slimmest percentage since the company went public in 2010, its annual profit to drop for the first time since 2017 and its annual vehicle deliveries to decline for the first time since at least 2016, according to FactSet data. Experts largely view Trump’s support for more lax regulation as a boon for the heavily regulated Tesla, while tariffs and a rollback in tax credits would hurt Tesla less than its automaker peers.

Forbes Valuation

Musk, Tesla’s chief executive officer and largest shareholder is by far the richest person in the world, owner of a record $334 billion fortune, according to our latest estimates. The self-described “first buddy” of Trump, Musk donated more than $100 million toward Trump’s election efforts and will advise the president as the co-chair of the newly created Department of Government Efficiency.

Further Reading

ForbesTesla Stock Rises 6%: What We Know About Trump’s Impact On Musk’s EV GiantBy Derek Saul
ForbesElon Musk’s Risky Gamble On Trump Pays OffBy Alan Ohnsman