Obstacle crossed still leaves Tesla stock in ridiculous mode

While the advice is certainly good news, it hardly represents a major operational feat that should wow Wall Street. For starters, meeting operational forecasts is a routine event for most members of the S&P 500, to which Tesla was added last month.

And investors shouldn’t forget that CEO Elon Musk once said in 2016 that Tesla will sell a million cars by 2020. Since making that claim, Tesla’s stock has grown tenfold. almost fifteen. Last year also went without Mr. Musk’s pledge of one million fully autonomous “robotaxis” on the roads by the end of 2020 coming to fruition.

Returning to the present, the company said it produced almost as many cars as it delivered to customers in the fourth quarter. But in October, Tesla said it installed enough production capacity to make 210,000 in the quarter, suggesting that the capacity utilization rate in the quarter was actually 86% quite low.

As a result of last year’s scorching rally, Tesla’s market value stands at nearly $ 670 billion. That’s $ 1.3 million per car sold last year, roughly seven times the combined market value of Ford and General Motors..

Yet Tesla has a tiny share of the global auto market and competition from electric cars is starting to heat up. To justify the price of the stock, Tesla would have to exceed its own forecasts, not just stick to them.

Additionally, Tesla’s low profit is heavily flattered by selling regulatory credits to help competitors meet their emissions mandates. While the fourth quarter tally will not be revealed until Tesla announces its full financial results, Tesla has recorded $ 1.3 billion in such sales over the previous four quarters, which generates a profit margin. of 100%. This source of profit may decline as electric competition from legacy automakers increases, which could mean fewer buyers for credits.

These concerns do not bother shareholders who are sitting on huge gains. But recent history offers a warning: Tesla’s market value has been halved, in two episodes since 2018. If that happened, the stocks would still be valued at around 700 times the trailing profits. The leaders of the automotive industry have always been fortunate enough to achieve a valuation of 10 times the profits.

Mr Musk wisely decided to sell $ 10 billion in stocks last year amid the furious recovery. For average investors, it probably makes sense to follow his lead.

Write to Charley Grant at [email protected]