21 million vehicles – ASP of $38k (average new car price in the U.S.16 million vehicles – current ASP of $51k.Per Figure 3, Tesla’s current valuation implies that, in 2030, it will sell the following number of vehicles based on these ASP benchmarks: Below are the number of vehicles Tesla needs to sell in 2030 to justify ~$1,200/share. To provide inarguably best-case scenarios for assessing the expectations reflected in Tesla’s stock price, we assume Tesla achieves profit margins twice as high as Toyota Motor Corp (TM) and quadruples its current auto manufacturing efficiency. That represents 60% of the projected base case global EV passenger vehicle market in 2030 and the implied vehicle sales based on lower ASPs look even more unrealistic. Reverse DCF Math: Valuation Implies Tesla Will Own 60%+ of the Global Passenger EV MarketĪt its current average selling price (ASP) per vehicle of ~$51k, Tesla’s stock price of ~$1,200/share implies the firm will sell 16 million vehicles in 2030 versus ~930k in 2021. The bottom line is that it is hard to make a straight-faced argument that in a competitive market, Tesla can achieve the sales its valuation implies. The global EV market is simply not big enough for Tesla to achieve the sales expectations in its valuation unless everyone else exits the market. Indeed, automakers other than Tesla already account for 85% of global EV sales through the first half of 2021. Incumbent automakers have spent billions of dollars building out their EV offerings. The biggest challenge to any Tesla bull case is the rising competition from incumbents and startups alike across the global EV market. Why We Remain Bearish on Tesla: Valuation Ignores Weakening Competitive Position: The headwinds Tesla faces are numerous (such as the recent recall of half a million vehicles) and outlined in more detail in our report here. For reference, Adam Jonas, a Morgan Stanley analyst, projects Tesla will sell 8.1 million vehicles in 2030. However, that number is minuscule compared to the number of vehicles Tesla must sell to justify its current stock price – anywhere from 16 million to upwards of 46 million depending on average selling price (ASP) assumptions. Selling just under 1 million cars in 2021 sounds great and was no small feat. Tesla’s record vehicle deliveries were a major factor in stock performance in 2021. The optimistic hopes for these businesses seem to compel investors to buy shares at valuations more suited to science-fiction than investing. Main Reason for Short Underperformance: Irrational Investor Exuberance: Tesla bulls continue to pile into the stock on the hopes Tesla will revolutionize not just the auto industry, but energy, software, transportation, insurance, and more, despite evidence to the contrary as we detail in our report here. See our most recent report on Tesla here. We originally added Tesla to our Focus List Stocks: Short Model Portfolio in November 2017, and while it underperformed as a short in 2021, its valuation remains disconnected from the reality of the firm’s fundamentals and the electric vehicle (EV) market at large. Underperforming Focus List Short Stock 1: Tesla (TSLA) : Up 50% vs. Performance includes the performance of stocks currently in the Focus List Stocks: Short Model Portfolio, as well as those removed during the year, which is why the number of stocks in Figure 2 (31) is higher than the number of stocks currently in the Model Portfolio (28).īelow we detail the expectations for future profit growth baked into each of the two stocks, and why we believe each of them is overvalued.
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