Why Does Every Single Analyst Have a Wildly Different Price for Tesla’s Stock?
Tesla has hit astronomical heights. In 2019, its stock saw prices lower than $200.
Fast forward a year, and Tesla stock has seen stock prices as high as $1,800. As Tesla managed to meet the expectations of the Model 3 ramp-up, its valuation began to clear new heights. Being the most shorted company in stock market history helped to lift some of that pressure when the time came to cover those positions on the run back up.
Tesla’s story isn’t all about stock price.
Tesla’s stock price is only one perspective. Its meteoric 1,000%+ rise in price means that it is now larger than Toyota Motors — by comparison, Toyota sold 10.74 million units in 2019. Tesla sold 367,500.
But Tesla isn’t larger than Toyota. Tesla is larger than Toyota, Mercedes Benz, and BMW combined. Yes, together.
Tesla's market capitalization is nearly $300 billion. Toyota, Mercedes, and BMW fly just under that.
Yet, analysts feel confident in the future of the automobile technology behemoth:
Piper Sandler raised Tesla’s stock price to $2,322, justifying it by claiming that battery technology and software will pave the way toward Tesla’s revenue stabilization.
It’s not all rainbows and roses and software, however.
In fact, a handful of analysts rate Tesla a sell. Analysts at J.P. Morgan, Barclays, and RBC all rate the stock equivalent to a sell rating. Their price targets are anywhere from $300 to $800 a share.
Of 36 analysts, the average value for Tesla is $900.
But some of these numbers, especially Brian Johnson’s, go as low as $40 a share.
Some of this analysis is based on increased competition in the EV market. And, if the competition existed, that would surely be a reasonable argument to make. However, almost 9 years after the Model S release, the world has yet to see an equivalent electric car released by a major automaker. Even the startups that have hit the media’s attention, such as Rivian and Nikola, have yet to release anything more than a video or a non-functioning prototype.
Energy density improvements are also a place of critique.
However, given that Tesla’s Battery Day has now been pushed back considerably, the investor world is left to guess how much Tesla improved on its energy efficiency.
A big area of criticism was the outsourcing of important materials Tesla needed; namely, the self-driving chips that were manufactured by Nvidia.
The justification for a multi-thousand Tesla valuation based on self-fabrication.
Tesla’s Autonomy Day on April 22, 2019, brought a number of amazing changes happening behind the scenes.
In that presentation, Elon outlined a few key things for Tesla:
- The robotaxis are coming. Elon said, last year, that they would be here by Q2 2020. Obviously, since we are currently talking about this in Q2 2020, it’s probably not going to happen yet. But he was confident, and, so far, Elon has delivered on everything he said he was going to do. Hopefully, this means your Tesla will be able to drive itself out of your driveway and into the night to collect taxi fares for you while you sleep soundly in your bed.
- The Autopilot system is constantly learning from Tesla’s fleet. Because all of the cameras are operational while autopilot is engaged, that data is then transferred to Tesla to re-render the autopilot network. It’s a gigantic brain that’s exponentially improving in real-time. Nobody else is anywhere close in developing something to this extent. Most would estimate that this service alone could be worth a fortune if developed to its fully matured state. Every day, there are more Teslas on the road helping this system improve even faster.
- Tesla’s Full-Self Driving chips were originally fabricated by Nvidia. By 2019, Tesla began designing their own chips, and, with the help of Samsung’s factories, the Model 3 has become the latest beneficiary of that change. An in-house fabrication design removes the ceiling for what the architecture and the technology are capable of achieving. Elon’s vehicles are already seriously ahead of the competition — most of that is because the hardware portion of everyday automobiles is outsourced. In a few years, I’d imagine that Tesla will be that much further ahead.
Do we have enough evidence to justify another spike in Tesla’s stock price?
Even with all of the technology that’s gestured with the developments of Tesla’s cars, I would err on the side of caution.
While every analyst is rating pretty enthusiastically, and the average analyst’s pricing lies around $900, I would estimate that Tesla will eventually be valued even lower than that.
This is because, even with all of the developments at hand, Tesla will likely generate revenue that’s in line with other automakers. Technology is an arena where, eventually, the playing field will level. While the competition seems far and away right now, that gap won’t last for an infinite space of time.
Toyota has followed suit, announcing an entire line of electric vehicles that will gradually be released from now until 2025.
Not justifying further leaps in Tesla’s price doesn’t mean Tesla is bad.
Having this conversation about the company is not to say that the company itself is failing.
By contrast, Tesla is a car company that had no business making cars — but they ended up besting all of the automakers at their own game, from the ground-up.
It’s a feat of engineering magic that nobody can question.
That being said, the stock market is about sober valuations. Right now, even with all the forward momentum in its path, Tesla stands to deliver a lot. Probably a lot more than reality dictates it can.
There are always instances of time where both institutional and retail investors find themselves fundamentally disconnected from the capabilities of technological advancement.
The dot-com bubble, while a massive deflation in virtually every corner of internet technology, brought along many new attributes that we use today. Namely, the increases in data transmission, the betterment of camera technology, and the tiny size of very powerful hardware today.
Tesla does not operate in a vacuum. Once in a while, markets may make it seem like they do.
“Nothing sedates rationality like large doses of effortless money.” — Warren Buffet