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Tesla Stock: Massively Overvalued By Every

Reasonable Metric
Sep. 29, 2023 5:34 PM ETTesla, Inc. (TSLA)TM, TOYOF116 Comments13 Likes

John Engle
6.62K Followers
Follow

Summary

 Tesla, Inc. CEO Elon Musk has confidently claimed that the company will
reach 20 million annual vehicle sales by 2030.

 Analysts warn of difficulties in achieving this growth, with downside risks to

earnings expectations and overestimation of Tesla's growth potential.

 Tesla's current valuation is significantly higher than what can be justified by its
automotive business alone, and its non-automotive enterprises face challenges.
Justin Sullivan

Tesla Inc. (NASDAQ:TSLA) has grown at a rapid clip over the past several years, with
deliveries rising at a blistering pace year after year. The company delivered just over 100,000
vehicles in 2017; in 2022, it delivered 1.3 million. Tesla has pledged that this scorching growth
rate will continue for a long time to come. Last year, CEO Elon Musk claimed confidently that
Tesla would reach 20 million in annual vehicle sales by 2030. Tesla's pace of growth to date and
investors' confidence in its ability to achieve Musk's ambitious targets have helped elevate the
electric vehicle ("EV") maker's stock far beyond that of any other automaker.

Of course, promising 20 million deliveries in 2030 is much easier than actually achieving 20
million deliveries. To do so, Tesla would have to grow about 40% annually from 2024 through
2030. That seems like a tall order, even for Tesla, which is already struggling to achieve its near-
term growth targets.

Wild Growth Expectations Collide with Reality

Q3 deliveries, which will be reported next week, appear set to fall short of market expectations,
though Tesla is unlikely to cut its full-year delivery target of 1.8 million deliveries.
Looking beyond 2023, some analysts see further difficulties in the offing. Deutsche Bank, for
example, warned that the market's forward-looking consensus may be significantly
overoptimistic:

"Looking at 2024, however, we see considerable downside risk to earnings expectations due to
[a] much lower volume outlook than the market believes. On the bright side, with the company
not trying to push as much volume, there could potentially be less pricing pressure next year."
Deutsche expects Tesla to forecast approximately 2.1 million vehicle deliveries in 2024, 9.5%
lower than the current Wall Street consensus estimate of 2.3 million deliveries. While this would
still represent strong growth from 2023, it is indicative of the market's tendency to overestimate
Tesla's growth potential.

Growth will only get harder over time, as the base number continues to grow. Tesla is likely to
find that doubling vehicle production and sales from 100,000 to 200,000, or from 500,000 to 1
million, is much easier than going from 2 million to 4 million-let alone 2 million to 20 million.
The challenge begins with the sheer cost of building out the capacity needed for such a level of
production, a subject I have discussed previously on Seeking Alpha. The price tag of Musk's
ambition will be astronomical, perhaps in excess of $400 billion. With just $23 billion in the
bank currently, Tesla can hardly finance such an expansion organically.

Even if Tesla does find a way to build capacity for 20 million vehicles, it will need to sell them.
Given that the world's current largest automaker, Toyota (TM), sold "just" 10.5 million vehicles
in 2022, Tesla will have to seize a massive amount of market share from its competitors. That
may prove easier said than done.

Valuing Tesla's Automotive Business

Let us assume for a moment that Tesla will successfully defy all the odds and grow its
automotive business to Musk's promised 20 million vehicles per year. Under this scenario, what
valuation can we assign Tesla today? The Wall Street Journal has recently attempted to answer,
publishing a DCF analysis on Sep. 28:

"If we bear with Musk, though, it follows that Tesla will become a global mass-market brand
with appeal to families in richer and poorer regions alike. Our best guide to what this company
might look like is still probably Toyota, whose consolidated revenue per vehicle was about
$28,000 in its most recent financial year through March. If we plug that number into our Tesla
model at a generous 10% operating margin-mass-market carmakers typically make single-digit
margins-we still only get to an enterprise value of $445 billion for an automotive business
producing 20 million vehicles a year in 2030."
Even with the rather generous assumptions detailed above, Tesla's enterprise value comes out to
just $445 billion. Considering Tesla's market capitalization currently stands at $758 billion, that
should be rather distressing news to anyone betting that Tesla's stock will continue to fly high.
The Wall Street Journal
Simply put, Tesla cannot justify its current valuation on even the most optimistic future of its
automotive business. Something else is needed to square the circle.

Is Tesla Really "More than a Car Company" After All?

Tesla has long touted itself as "more than just a car company" in order to justify its eye-watering
valuation. Tesla bulls point to the company's solar and energy storage business, as well as the
immense future potential of autonomous robotaxis, as justification for Tesla's sky-high stock
price.

Let us address each of these businesses in turn.

Tesla Energy
This topic deserves an article of its own, but to address it in brief: Tesla claims to be a major
player in renewable energy, but its words fall far short of its deeds. Since acquiring Solar City in
2016, solar deployments have collapsed. From a peak of 253MW deployed in Q4 2015,
deployments fell to a mere 27MW in Q2 2020. While it has recovered a bit since then, it remains
nowhere near the peak. In Q2 2023, Tesla deployed just 66MW-38% less than the 94MW it
managed to deploy during the same period last year.

Tesla's energy storage business, meanwhile, has been growing at a healthy rate. Energy storage
deployments in Q2 2023 reached 3.7GWh, up 222% year over year. This accounted for the lion's
share of Tesla Energy's generation and storage revenues, which increased by 74% year-over-year
to $1.5 billion. However, it is still a tiny fraction of Tesla's business.

Tesla's energy generation and storage business accounts for just 6.1% of its total revenue.
Meanwhile, the segment's high cost of revenue, which came in at $1.2 billion in Q2, makes it a
significantly lower-margin business than the automotive segment. That is hardly a ringing
endorsement for awarding a premium valuation to Tesla on the basis of its energy business.

Autonomy and Robotaxis

Tesla is one of the most visible players in the autonomous vehicle development space. However,
while Tesla portrays itself as a leader in AV development, the viability of its strategy is far from
certain. For years, the company has been promising its customers and the market that the launch
of its fully autonomous robotaxi fleet is imminent. Yet time and again, it has failed to deliver.

That has not stopped Tesla from making money on its AV efforts, however. The company has
been selling full self-driving ("FSD") to customers since 2018. More than 400,000 customers
have bought FSD. That creates another wrinkle for Tesla, as failure to deliver to these customers
could ultimately trigger considerable civil liability. Seeking Alpha's Bill Maurer sought
to quantify this potential liability back in February. He estimated that failure could cost Tesla $4
billion from FSD-related refunds alone. It could be much worse; if ordered to refund the full
value of the vehicles in addition to the cost of the FSD package, Maurer estimated that Tesla's
bill could reach as much as $240 billion.

Betting that Tesla will crack the autonomy problem seems risky, even before factoring in the
potentially catastrophic cost of failure. Assigning a dollar value to a DCF for products that do not
exist, and which may never exist, makes little sense to me.

Time for a Reality Check

Buying a stock already priced for perfection is risky; buying a stock already priced for
considerably better than perfection is downright dangerous. That should not be a controversial
statement; indeed, it's essentially Securities Analysis 101. Yet in the case of Tesla, that idea is
fundamentally out the window. The company currently boasts a valuation far in excess of what
even the most wild-eyed optimism can justify. Even if Tesla quintuples production by 2030
while maintaining industry-beating margins and cost of capital, it is still overvalued by nearly
50%.
The effort to justify Tesla's current valuation on the basis of its non-automotive enterprises is
even more fraught. Tesla's solar business has been in decline for years, while its battery storage
business remains barely a blip on its financials. Moreover, both of these segments are also
hampered by competitive pressures due to their nature as essentially commodity businesses.
Tesla's autonomy program, meanwhile, remains little more than a wild promise with little
material to show for it. Tesla may be able to placate investors for a while yet with further empty
promises that "next year" will be the year of the robotaxi, but the clock is ticking.

Ultimately, it is my view that Tesla, Inc. stock is significantly overvalued by any reasonable
metric. However, the market has been willing to keep this name riding high for a long time.
While wild-eyed expectations will have to meet with clear-eyed reality someday, it is impossible
at present to say when that might be. Trading against a name buoyed by animal spirits is always
fraught with peril, so tread carefully!

Editor's Note: This article discusses one or more securities that do not trade on a major U.S.
exchange. Please be aware of the risks associated with these stocks.

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Start now
About TSLA

 1D
 5D
 1M
 6M
 1Y
 5Y
 10Y


Se…Sep 26Sep 27Sep 28Sep 29240260220

Market Cap
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PE
-
Yield (TTM)
-
Rev Growth (YoY)
 -
Short Interest
-
Prev. Close
-
Compare to Peers
More on TSLA

Stocks To Watch: Eyes On Government Shutdown Drama, New Spinoffs And Auto
Sector Updates
SA Stocks To Watch
Auto stocks to see some jolts with UAW drama, deliveries updates and macro worries
in the mix
Tesla and Chipotle are sued separately by the EEOC for civil rights violations
Tesla will report Q3 deliveries next week with extra wildcards in the mix

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4. Consumer

Tesla Stock: Massively Overvalued By Every

Reasonable Metric
Sep. 29, 2023 5:34 PM ETTesla, Inc. (TSLA)TM, TOYOF116 Comments13 Likes

John Engle
6.62K Followers
Follow

Summary

 Tesla, Inc. CEO Elon Musk has confidently claimed that the company will
reach 20 million annual vehicle sales by 2030.
  Analysts warn of difficulties in achieving this growth, with downside risks to
earnings expectations and overestimation of Tesla's growth potential.

 Tesla's current valuation is significantly higher than what can be justified by its
automotive business alone, and its non-automotive enterprises face challenges.

Justin Sullivan

Tesla Inc. (NASDAQ:TSLA) has grown at a rapid clip over the past several years, with
deliveries rising at a blistering pace year after year. The company delivered just over 100,000
vehicles in 2017; in 2022, it delivered 1.3 million. Tesla has pledged that this scorching growth
rate will continue for a long time to come. Last year, CEO Elon Musk claimed confidently that
Tesla would reach 20 million in annual vehicle sales by 2030. Tesla's pace of growth to date and
investors' confidence in its ability to achieve Musk's ambitious targets have helped elevate the
electric vehicle ("EV") maker's stock far beyond that of any other automaker.

Of course, promising 20 million deliveries in 2030 is much easier than actually achieving 20
million deliveries. To do so, Tesla would have to grow about 40% annually from 2024 through
2030. That seems like a tall order, even for Tesla, which is already struggling to achieve its near-
term growth targets.
Wild Growth Expectations Collide with Reality
Q3 deliveries, which will be reported next week, appear set to fall short of market expectations,
though Tesla is unlikely to cut its full-year delivery target of 1.8 million deliveries.

Looking beyond 2023, some analysts see further difficulties in the offing. Deutsche Bank, for
example, warned that the market's forward-looking consensus may be significantly
overoptimistic:

"Looking at 2024, however, we see considerable downside risk to earnings expectations due to
[a] much lower volume outlook than the market believes. On the bright side, with the company
not trying to push as much volume, there could potentially be less pricing pressure next year."
Deutsche expects Tesla to forecast approximately 2.1 million vehicle deliveries in 2024, 9.5%
lower than the current Wall Street consensus estimate of 2.3 million deliveries. While this would
still represent strong growth from 2023, it is indicative of the market's tendency to overestimate
Tesla's growth potential.

Growth will only get harder over time, as the base number continues to grow. Tesla is likely to
find that doubling vehicle production and sales from 100,000 to 200,000, or from 500,000 to 1
million, is much easier than going from 2 million to 4 million-let alone 2 million to 20 million.
The challenge begins with the sheer cost of building out the capacity needed for such a level of
production, a subject I have discussed previously on Seeking Alpha. The price tag of Musk's
ambition will be astronomical, perhaps in excess of $400 billion. With just $23 billion in the
bank currently, Tesla can hardly finance such an expansion organically.

Even if Tesla does find a way to build capacity for 20 million vehicles, it will need to sell them.
Given that the world's current largest automaker, Toyota (TM), sold "just" 10.5 million vehicles
in 2022, Tesla will have to seize a massive amount of market share from its competitors. That
may prove easier said than done.

Valuing Tesla's Automotive Business

Let us assume for a moment that Tesla will successfully defy all the odds and grow its
automotive business to Musk's promised 20 million vehicles per year. Under this scenario, what
valuation can we assign Tesla today? The Wall Street Journal has recently attempted to answer,
publishing a DCF analysis on Sep. 28:

"If we bear with Musk, though, it follows that Tesla will become a global mass-market brand
with appeal to families in richer and poorer regions alike. Our best guide to what this company
might look like is still probably Toyota, whose consolidated revenue per vehicle was about
$28,000 in its most recent financial year through March. If we plug that number into our Tesla
model at a generous 10% operating margin-mass-market carmakers typically make single-digit
margins-we still only get to an enterprise value of $445 billion for an automotive business
producing 20 million vehicles a year in 2030."
Even with the rather generous assumptions detailed above, Tesla's enterprise value comes out to
just $445 billion. Considering Tesla's market capitalization currently stands at $758 billion, that
should be rather distressing news to anyone betting that Tesla's stock will continue to fly high.

The Wall Street Journal

Simply put, Tesla cannot justify its current valuation on even the most optimistic future of its
automotive business. Something else is needed to square the circle.

Is Tesla Really "More than a Car Company" After All?

Tesla has long touted itself as "more than just a car company" in order to justify its eye-watering
valuation. Tesla bulls point to the company's solar and energy storage business, as well as the
immense future potential of autonomous robotaxis, as justification for Tesla's sky-high stock
price.

Let us address each of these businesses in turn.

Tesla Energy
This topic deserves an article of its own, but to address it in brief: Tesla claims to be a major
player in renewable energy, but its words fall far short of its deeds. Since acquiring Solar City in
2016, solar deployments have collapsed. From a peak of 253MW deployed in Q4 2015,
deployments fell to a mere 27MW in Q2 2020. While it has recovered a bit since then, it remains
nowhere near the peak. In Q2 2023, Tesla deployed just 66MW-38% less than the 94MW it
managed to deploy during the same period last year.

Tesla's energy storage business, meanwhile, has been growing at a healthy rate. Energy storage
deployments in Q2 2023 reached 3.7GWh, up 222% year over year. This accounted for the lion's
share of Tesla Energy's generation and storage revenues, which increased by 74% year-over-year
to $1.5 billion. However, it is still a tiny fraction of Tesla's business.

Tesla's energy generation and storage business accounts for just 6.1% of its total revenue.
Meanwhile, the segment's high cost of revenue, which came in at $1.2 billion in Q2, makes it a
significantly lower-margin business than the automotive segment. That is hardly a ringing
endorsement for awarding a premium valuation to Tesla on the basis of its energy business.

Autonomy and Robotaxis

Tesla is one of the most visible players in the autonomous vehicle development space. However,
while Tesla portrays itself as a leader in AV development, the viability of its strategy is far from
certain. For years, the company has been promising its customers and the market that the launch
of its fully autonomous robotaxi fleet is imminent. Yet time and again, it has failed to deliver.

That has not stopped Tesla from making money on its AV efforts, however. The company has
been selling full self-driving ("FSD") to customers since 2018. More than 400,000 customers
have bought FSD. That creates another wrinkle for Tesla, as failure to deliver to these customers
could ultimately trigger considerable civil liability. Seeking Alpha's Bill Maurer sought
to quantify this potential liability back in February. He estimated that failure could cost Tesla $4
billion from FSD-related refunds alone. It could be much worse; if ordered to refund the full
value of the vehicles in addition to the cost of the FSD package, Maurer estimated that Tesla's
bill could reach as much as $240 billion.

Betting that Tesla will crack the autonomy problem seems risky, even before factoring in the
potentially catastrophic cost of failure. Assigning a dollar value to a DCF for products that do not
exist, and which may never exist, makes little sense to me.

Time for a Reality Check

Buying a stock already priced for perfection is risky; buying a stock already priced for
considerably better than perfection is downright dangerous. That should not be a controversial
statement; indeed, it's essentially Securities Analysis 101. Yet in the case of Tesla, that idea is
fundamentally out the window. The company currently boasts a valuation far in excess of what
even the most wild-eyed optimism can justify. Even if Tesla quintuples production by 2030
while maintaining industry-beating margins and cost of capital, it is still overvalued by nearly
50%.

The effort to justify Tesla's current valuation on the basis of its non-automotive enterprises is
even more fraught. Tesla's solar business has been in decline for years, while its battery storage
business remains barely a blip on its financials. Moreover, both of these segments are also
hampered by competitive pressures due to their nature as essentially commodity businesses.
Tesla's autonomy program, meanwhile, remains little more than a wild promise with little
material to show for it. Tesla may be able to placate investors for a while yet with further empty
promises that "next year" will be the year of the robotaxi, but the clock is ticking.

Ultimately, it is my view that Tesla, Inc. stock is significantly overvalued by any reasonable
metric. However, the market has been willing to keep this name riding high for a long time.
While wild-eyed expectations will have to meet with clear-eyed reality someday, it is impossible
at present to say when that might be. Trading against a name buoyed by animal spirits is always
fraught with peril, so tread carefully!

Editor's Note: This article discusses one or more securities that do not trade on a major U.S.
exchange. Please be aware of the risks associated with these stocks.

Recommended For You

Give yourself the best tools to win

Get research and analysis on your investments with Seeking Alpha Premium. You’ll get both
the bull and bear perspective on 1000s of stocks - not just the trending tickers. Secure your
competitive advantage now for just $4.95 for your first month.
Start now
About TSLA

 1D
 5D
 1M
 6M
 1Y
 5Y
 10Y


Se…Sep 26Sep 27Sep 28Sep 29240260220

Market Cap
-
PE
-
Yield (TTM)
-
Rev Growth (YoY)
 -
Short Interest
-
Prev. Close
-
Compare to Peers
More on TSLA

Stocks To Watch: Eyes On Government Shutdown Drama, New Spinoffs And Auto
Sector Updates
SA Stocks To Watch
Auto stocks to see some jolts with UAW drama, deliveries updates and macro worries
in the mix
Tesla and Chipotle are sued separately by the EEOC for civil rights violations
Tesla will report Q3 deliveries next week with extra wildcards in the mix

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4. Industrial

3M: A 7%-Yielding, 30% Undervalued

Dumpster Fire
Sep. 29, 2023 7:54 AM ET3M Company (MMM)74 Comments24 Likes

Leo Nelissen
Investing Group Leader
Follow

Summary
  3M Company's stock is trading significantly below its all-time high, down 22%
year-to-date.

 The company recently settled a historic $6 billion lawsuit related to "forever

chemicals" and faces thousands of other lawsuits.

 3M has outlined a three-pillar strategy, including a healthcare spin-off and risk

reduction initiatives, to potentially turn the company around.

burakpekakcan/E+ via Getty Images

Introduction
It's time to talk about the 3M Company (NYSE:MMM), the second-biggest disappointment
from Minnesota after the 0-3 Vikings.

Excluding dividends, 3M shares are trading more than 60% below their all-time high. They are
down 22% year-to-date and less than

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3M weighs whether to restart PFAS manufacturing at factory in Belgium
3M rated Hold in new research coverage at HSBC

3M Company Stock: At The Lows Again

Jonathan Weber
3M's stock declines to 2-week low as CFO foresees 'slow growth'

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