Is Tesla (TSLA) Stock Overvalued? $1 Trillion Soon?

TL;DR

Tesla at a $550 billion market cap or $585 per share is overvalued, according to Victor, who estimates a fair market cap of $250 billion to $350 billion based on operational milestones. He nevertheless sees long-term potential in affordable electric vehicles, battery technology, autonomous driving, Robotaxi, and energy. Read on for his valuation reasoning, preferred entry strategy, growth outlook, and principal risks.

Transcript

Hi everyone, this is Victor here. Welcome to the Intelligent Investor Channel where you will learn about stock investing and personal finance that will help you become a great investor. In today’s video, I am going to talk about Tesla stock—I have a long position in Tesla, and It is one of my favorite long-term investments right now. In this video,... Read More

Key Insights

• 🥳 Tesla's current market cap is likely overvalued due to its high price-to-earnings ratio and the influx of institutional investors.
• 👋 The best time to invest in Tesla is during significant price corrections for a larger margin of safety.
• 😌 Tesla's long-term growth prospects lie in its focus on affordable electric vehicles, expansion into new markets, and various other services.
• 🪛 Catalysts such as increasing demand for electric vehicles, full capacity utilization of Gigafactories, advancements in battery technology, and full self-driving capabilities could drive Tesla to a $1 trillion market cap.

Questions & Answers

Q: Is Tesla (TSLA) stock overvalued at a $550 billion market cap?

Yes, Victor believes Tesla is overvalued at a $550 billion market cap or $585 per share. He points to its 1,120 price-to-earnings ratio, rapid share-price growth, and market-cap progress far exceeding its operational milestones.

Q: What is a fair valuation for Tesla stock?

Victor estimates Tesla's fair market cap at between $250 billion and $350 billion. This range would more closely align the company's market-cap growth with the operational milestones in its CEO performance package.

Q: Why did Tesla stock rise after its announced inclusion in the S&P 500?

The announcement forced institutional funds tracking the S&P 500 index to invest billions of dollars in Tesla. The stock increased 43% in less than two weeks between November 17, 2020, and November 27, 2020.

Q: What does Tesla's CEO performance award suggest about its valuation?

Tesla's $550 billion market cap was already near the top end of the market-cap growth expected across 12 vesting tranches. However, Tesla had achieved only 4 operational milestones, suggesting its market value was ahead of its operating performance.

Q: When does Victor think investors should buy Tesla stock?

He recommends waiting for large price corrections to obtain a larger margin of safety. He says Tesla can readily fall 10% to 30% around earnings, deliveries, or other significant company events.

Q: How large have Tesla's previous stock corrections been?

Tesla fell as much as 60% between February 19, 2020, and March 18, 2020, during the pandemic sell-off. It also dropped as much as 33% between August 31, 2020, and September 8, 2020.

Q: What are Tesla's main vehicle revenue sources?

Tesla earns most of its vehicle revenue from the Model 3 and Model Y. It earns less from the Model S and Model X because the Model 3 and Model Y are more affordable.

Q: Why could Tesla eventually reach a $1 trillion market cap?

Victor identifies growing electric-vehicle demand, factory expansion in Shanghai and Berlin, battery advances, and full self-driving development as the 4 primary catalysts. He also sees growth potential in autonomous driving, Robotaxi, and the energy business.

Summary & Key Takeaways

• Definition: Victor considers Tesla a high-tech growth company because of its electric vehicles, battery technology, autonomous driving, Robotaxi, and energy business.

• Number: Tesla was valued at a $550 billion market cap or $585 per share.

• Number: Tesla's price-to-earnings ratio was 1,120.

• Number: Tesla shares gained 43% in less than two weeks between November 17, 2020, and November 27, 2020.

• Number: Tesla shares increased 600% year to date in 2020.

• Compare: A $250 billion to $350 billion market cap would better match Tesla's operational milestones than its $550 billion valuation.

• Number: Tesla's CEO award has 12 vesting tranches, while the company had achieved 4 operational milestones.

• When: Victor recommends buying during corrections, noting Tesla can fall 10% to 30% around earnings, deliveries, or major events.

• Compare: Model 3 and Model Y generate more revenue than Model S and Model X because they are more affordable.

• Number: The 4 catalysts for a $1 trillion market cap are electric-vehicle demand, Shanghai and Berlin factories, battery advances, and full self-driving.