Investors analyzing Tesla shares should be cautious when relying on Wall Street’s price estimates due to wide variations in valuation methods and predictions.
When assessing shares of Elon Musk’s electric vehicle manufacturer, investors should be cautious about utilizing Wall Street’s Tesla price estimates.
Challenges in Valuing Tesla Stock
It is as difficult as figuring out why a Tesla Cybertruck looks the way it does to figure out how Wall Street analysts assess Tesla stock.
Multiples of sales, net income, earnings before interest, taxes, depreciation, and amortization, or Ebitda, and book value are just a few of the countless methods available for valuing equities. Additionally, there are sum-of-the-parts, or SOTP, valuations that attempt to appraise each business division inside a company independently.
SOTP Valuations and AI Businesses
As analysts seek to assess difficult-to-value AI-related businesses, such as robo-taxis and humanoid robots, in addition to the core electric-vehicle and energy-storage businesses, SOTP values are popular with Tesla.
Wall Street’s figures for each of Tesla’s companies are inconsistent, which is an issue for investors. Consider robots. Alexander Perry, a BofA analyst, began covering Tesla shares on Wednesday with a $460 price target and a buy rating.
🚗 Tesla Segment Valuations
- Robot Company: BofA values ~$8 per share
- Self-Driving Tech: ~$325 per share
- EV Company: ~$90 per share
- Total EV Industry Value: ~$330 billion
- Context: Comparatively less than Toyota Motor
Analyst Disagreements
All of those are accurate approximations. However, there are others. Edison Yu, a Deutsche Bank analyst, values the robot company at $124 per share, which is more than 15 times higher than BofA’s valuation. He believes that Tesla’s autonomous technology is worth $230 per share, which is roughly $100 less than Perry’s.
Yu, who rates shares as Buy, is a Tesla bull, just like Perry. He wants the price of Tesla shares to reach $480. Ben Kallo, a Baird analyst, is also. Based on 74 times the projected 2030 Ebitda discounted back at a rate of 9%, his price forecast for Tesla stock is $548. “Given its growth potential and multiple tailwinds, we feel this premium over large-cap, high-growth peers is justifiable,” he said.
Ebitda & DCF Valuations
Another method of valuing companies is using Ebitda multiples. Discounted cash-flow models are the same. Colin Langan, a Tesla bear and Wells Fargo analyst who rates shares Sell, does just that. $125 is his desired price.
The disparity between Wall Street’s top and bottom price predictions is roughly $475, or more than 100% of the current stock price, as a result of the methodological craziness. For Apple shares, the difference is more like 40% of the current market price.
📊 Tesla vs Apple Valuation
- Tesla: Price prediction spread ~100%
- Apple: Price prediction spread ~40%
- Reason: Tesla’s AI & EV growth uncertain
- Complexity: Tesla harder to value than Apple
- Investor Takeaway: High caution recommended
AI Focus and Market Movements
With more consistent growth rates and cash flows, Apple is undoubtedly a simpler company to value than Tesla. Investors attempting to determine the value of Tesla will find that unsettling.
The focus of Elon Musk’s EV manufacturer these days is AI. However, it is still unclear how much fleets of AI-trained robots and robo-taxis are worth.
In early trading on Thursday, Tesla’s stock was up 0.1% at $406.44, while futures for the Dow Jones Industrial Average and the S&P 500 were both down roughly 0.4%. Perry’s new rating contributed to a 3.4% increase in shares on Wednesday.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors should conduct their own research before making investment decisions.
