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As a company, Tesla has done wonders: it has successfully proven that Electrified Vehicles (EVs) can be successfully designed and consumer sentiment will be positive. Over the past ten years, while new vehicle sales in the U.S. have shown long-term decline, the sale of EVs – Battery Electric Vehicles (BEVs), Plug-in Hybrid Vehicles (PHEVs), Hybrid Vehicles and Fuel-Cell Vehicles (FCEVs) – have shown year-on-year increases. This has compelled nearly major carmaker in the world – from Germany and Japan to India and Brazil – to reorient focus towards this new frontier of vehicle technology.
However, while the company is doing rather well as a business, the stock’s performance flies in the face of all rational outlook regarding the auto industry.
Volumes and Ratios
Lets consider two other major U.S. carmakers as comparators: Ford (NYSE: F) and General Motors (NYSE: GM). For the calendar year of 2021, Ford is estimated to have sold 1.905 million cars in the U.S., of which about 121,000 were EVs. General Motors sold 3.655 million cars in the same period, of which only a little under 25,000 cars are EVs. The company is betting quite heavily on vehicles based on its all-new Ultium platform such as the GMC Hummer EV Pickup/GMC Hummer EV SUV, the Cadillac Lyriq, and the Chevrolet Silverado EV/GMC Sierra EV as well as the BrightDrop commercial vehicles – all of which are expected to be introduced by the end of 2022/early 2023. Tesla is estimated to have sold (as opposed to delivered) around 353,000 EVs (all of which are, of course, BEVs).
An additional comparator could be Toyota which is estimated to have sold 2.332 million cars in the U.S., of which a little under 584,000 were EVs but is less suitable in all comparison cases on account of its sizeable historical presence in a variety of markets. Toyota announced a lineup of 12 cars under the “Beyond Zero” (BZ) badge in December 2021, a number of which could be suitable for North American markets.
Tesla’s CEO Elon Musk has traditionally shown significant disdain for those shorting his company’s stock in recent years particularly in social media, where both he and his company have many fans. However, in reality, it can be seen that net short interest in his company has reduced to drawing up nearly par with US rivals Ford and General Motors in the present, despite stock prices climbing upwards.
In terms of daily traded volumes, Tesla has been slipping downwards to being nearly par of that with Ford and General Motors as well:
Note: Toyota being added as a comparator indicates the relative “normalcy” of these levels across the board.
Given that this is a performance graph in percentages, it should be noted that the 100% mark for Tesla is pegged at 12.499 million shares, which translates to 1.76% of shares outstanding. The 100% mark for Ford and GM is 0.74% and 0.79% of shares outstanding.
In terms of PE Ratios, Tesla’s ratios have historically been massively higher than those of Ford and General Motors.
Note: The starred entries were originally blank in the data provider’s (Koyfin) dashboard. The data provider stated that they don’t consider ratios over 500 and earnings below $0.01 to be meaningful and hence don’t publish them.
In terms of Price-to-Sales Ratio (PS Ratios), Tesla exhibits similar behaviour as with PE Ratios relative to Ford and General Motors:
Just by these two ratios, it is plain to see the problem with the stock: they have been far too high in recent years. While the company is doing rather well as a business, its success is completely divorced from its stock’s performance.
Since the start of 2022, top-line stocks in what is already the world’s most overvalued equity market have been exhibiting a substantial “ratio decay”. Tesla’s stock shows no exception to this rule. With just three facts, a simple simulation can be constructed to estimate a likely scenario for stock trajectory in 2022.
The Model: Assumptions and Results
These three paths are averaged into a “Path Average” (PA) via a random weighing matrix applied daily such that none of them have more than 60% weight on any day. Furthermore, no path holds the same majority weight on consecutive days. The results of the simulation are as follows:
By the start of December, the simulation estimates that Tesla’s stock price will be in the $284 – $367 range, with the PA price being $347.56.
In Conclusion
The simulation exemplifies that even a a strong earnings outlook and industry-leading ratios implies a price for the stock that is well below current price levels. While speculative interest in a company with a niche technology offering might be normal, it should be clear to most investors that the EV space is no longer “niche”; it’s instead the norm. The company’s market share, while dominant, is already beginning to slip downwards as the Electrified Vehicle segment shows an increasing number of choices for customers.
While the stock can be considered overvalued, the company’s fundamentals are undoubtedly solid. While earnings releases can be expected to generate a “bump” in stock prices, it likely wouldn’t be a long-lasting upward trajectory nor is i feasible to justify the price level the stock currently has.
This opens a possibility for short-term tactical plays either with the stock or with instruments with the stock underlying them for disciplined and empowered investors looking to make inflation-beating gains. For long-time stockholders who have held the company for more than (say) 5 years, the rationalization of the stock price will also lend long-term robustness in stock performance going forward.
Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.
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Notice
If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.
If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.
Risk Warnings
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
United States Visitors
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
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Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
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Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
Leverage Investment
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