Is Tesla Stock Overvalued?

If you follow the stock market, you should have heard all the hype around Tesla. The electric car company has been reaching new heights in stock price and there is no sign of slowing down. People are willing to invest in the company no matter the price. 

Looking at Tesla sales compared to other automobile companies, it has only produced a fraction of others, yet it still remains a high price point. It’s now become one of the most important stocks in the market, but remains truly overvalued, needing to fully grow into its valuation.

It’s become a common theme to see investors throw tons of money into Tesla stock, because they know it will just continue going up. Even MeetKevin, a popular YouTuber, used millions of dollars of margin to heavily invest in the stock. It’s no secret this is a hot stock, yet no one knows why it’s so overvalued and will the bubble pop?

Some analysts believe this is a sign the people are finally open to moving towards a greener solution for automobiles. However, I believe it’s become a new hot topic among young investors. In fact, people continue to throw money into the stock, no questions asked. With that capital, it’s hard to see a company not thrive. 

It’s funny; Tesla is not popular on Wall Street. The empty valuation makes it hard to determine the stock projections. Just looking at Analyst ratings, Tesla stock has 24% Buy ratings, 46% hold ratings and a surprisingly high 30% sell rating. 

Tesla has become the new stable to include in investor’s portfolio, only seeing expansive growth with no stopping. But why is the price not matching the company’s performance?

Tesla Stock Analysis

In comparison to other automobile companies, Tesla is definitely outperformed by those popular brands. They sell more cars and have a more prominent place among automobile investors. Yet, almost all automobile companies have seen a drastic decline in stock prices during the Pandemic, except for Tesla.

In the most recent Quarter, GM reported a 53.4% decline in revenue. Ford’s revenue was down 50.1%. Even Toyota’s revenue dropped 39.8%. Yet Tesla was only down 4.9%.

Why is Tesla different? Many argue that’s because Tesla is not an automobile company, but the new tech giant.

Is Tesla a Tech Stock?

Looking at Tech Giants, like Apple, Amazon or Microsoft, Tesla doesn’t quite match up just yet. The tech giants have averaged 15.6% growth compared to Tesla’s 5.3% revenue growth. It seems the stock is not on those levels just yet. But that doesn’t mean Tesla doesn’t below here. 

Tesla’s stock performance actually suggests its valuation should be somewhere between both automobiles and tech stocks. According to analysts, to really be on the level of automobiles, Tesla would probably need to trade at around $15. That is a huge dip in their current price point. 

Professionals that are better at math than me have concluded that, considering valuation premiums, it may be overvalued by about 168%. This means a more accurate price point for Tesla would be around $141. 

It would need to significantly boost its revenue to stand side by side with the tech giants and warrant its current valuation. Perhaps this hype around the stock may bring in more profits. 

Elon Musk just recently announced a cheaper electric car within 3 years, priced at around $25,000. He may have promised this in the past too, but the new model could see explosive growth, if their bubble didn’t burst just yet.

Wall Street Insight

Just because investors are going crazy for Tesla doesn’t mean Wall Street people are happy. They have a different outlook on the performance of the company and remain hesitant to buy into the hype. 

Like I mentioned earlier, their sell rating was higher than average, indicating many concerns swarming around.

The hesitation was further proven when Tesla was excluded from the S&P500 index. It met all the checkboxes and requirements to join, but their foundation was seen as shaky and still new. With a longer proven track record, they should be able to enter, but it’s no surprise they were rejected recently. 

Their overvaluation is a concern for Wall Street. It seems they are mostly holding their postion and waiting on the side lines. They understand the problems with growing an automobile company and risks involved, but investors still see it as a tech company. That oversight may spell trouble in the future, but we will just have to wait and see. 

Final Thoughts

Tesla is hands down very overvalued. There is no question and no justification for it’s crazy interest lately. Investors see Tesla as an interesting piece of technology. Others see it as an automobile company. That overlap causes constant friction over the future of Tesla and their valuation.

I believe we will continue to see Tesla’s valuation continue to rise for the next few years. That is until the heavy expectations on Tesla will crumble. Their production needs to increase by several multiples to warrant their current valuation, which I don’t see happening. When fantasy catches up to their reality is when we will see a change.