Since Elon Musk became Telsa’s CEO (TSLA), the company has been reaching for the stars and creating almost non-equivalent expectations from the market. Even the name – Tesla – can send shivers down people’s spines, referring to one of the most inventive humans in history (although he died penniless and deprived of his inventions). Nevertheless, the company has been the greatest innovator in its field so far, but competition is intensifying, causing some investors to wonder if its valuation is justifiable.
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In recent positive developments for the company, Donald Trump’s re-election to the White House and the forthcoming appointment of Elon Musk to a key role in a new-look government drove TSLA shares to jump 104.18% since Oct. 23rd. Still, Tesla’s stock looks overpriced when examining the company’s fundamentals, actual sales, and new ventures such as robotaxis and the Optimus humanoid robot program. However, this is probably a consequence of the market’s confidence in the company’s prospects. Simply put, the market expects great things from the company in the long run.
For example, Cantor analyst Andres Sheppard supports this belief. He has become far more optimistic about Tesla’s Robotaxi’s prospects, especially if the U.S. Department of Transportation establishes a regulatory framework for autonomous vehicles. He highlights the positive feedback on Tesla’s FSD version 13.2, which introduced new features and brought the company closer to launching fully autonomous Models Y and 3 by 2025.
If you wish to read in-depth about the company’s valuation concerns, you can read what our writer at Tipranks, James Fox, had to say about the TSLA stock.
Now, let’s examine Tesla’s current state in three key talking points and see if the company’s is making a Wile E. Coyote move or if the valuation is on point:
- Valuation Concerns: Tesla’s valuation is a primary concern for many, and it does look intimidating when looking at the numbers, putting the company under great pressure to deliver exceptional growth. The company’s non-GAAP trailing 12-month (TTM) price-to-earnings (P/E) ratio stands at 162.2 times, a staggering 945.9% above the sector median. Even forward-looking projections show a high valuation, with a forward Non-GAAP P/E of 156.8 times. These figures clearly show the market’s great belief in Tesla’s fortunes, but they don’t live up to its sales and actual income as of now. Maybe that’s why renowned investor Cathie Wood’s asset management firm, Ark Invest, continues to sell Tesla stocks, or perhaps it just wants to cash out on the company’s recent rally.
- Robotaxi Project Risks: Tesla’s ambitious robotaxi project is a significant factor in its high valuation. This is a coming-into-life industry that is forecasted at 78.42 billion by 2032. The vision of autonomous electric vehicles operating on a shared, ride-hailing basis promises substantial revenue streams. However, production of the robotaxi is not expected until 2026, while competition from companies like Alphabet’s (GOOGL) Waymo is intensifying, potentially bridging the technological gap between the two companies in the autonomous driving space. Additionally, Tesla is causing some murmurs among its investors when it comes to meeting its deadlines.
- Optimus Humanoid Robot Skepticism: The Optimus humanoid robot is another example of a fascinating yet risky venture for Tesla. Designed to perform various physical tasks, Optimus represents a step beyond electric vehicles. Musk believes that Optimus could lift Tesla’s market cap to $25 trillion somewhere in time. Analysts think that in the next 25 years, this industry could well be worth around $7 trillion. Despite its potential, Optimus is still in the prototype phase, with commercial production years away. It has to be taken into account that Optimus’s development timeline could be longer than anticipated, given the complexity of creating a robot that can safely and effectively operate in real-world environments.
Is Tesla Stock a Buy?
On Wall Street, TSLA stock is rated as a Hold, with 11 Buys, 13 Holds, and nine Sell ratings from analysts in the past three months. The average price target of $244.88 implies a potential for a 35% downside.
Conclusion
It’s too early to call whether Tesla’s valuation is justifiable or Whether It is making a Wile E. Coyote move and will crash to the ground under the market’s unrealistic expectations. What we do know is that when you reach for the stars, you sometimes get lost in space, which is not bad, but it depends on one’s point of view.
