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.
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.
Violeta a rejoint Leverage Shares en septembre 2022. Elle est chargée de mener des analyses techniques et des recherches sur les actions et macroéconomiques, fournissant des informations importantes pour aider à façonner les stratégies d’investissement des clients.
Avant de rejoindre LS, Violeta a travaillé dans plusieurs sociétés d’investissement de premier plan en Australie, telles que Tollhurst et Morgans Financial, où elle a passé les 12 dernières années de sa carrière.
Violeta est une technicienne de marché certifiée de l’Australian Technical Analysts Association et est titulaire d’un diplôme d’études supérieures en finance appliquée et investissement de Kaplan Professional (FINSIA), Australie, où elle a été conférencière pendant plusieurs années.
Julian a étudié l’économie, la psychologie, la sociologie, la politique européenne et la linguistique. Il possède de l’expérience en matière de développement commercial et de marketing grâce à des entreprises qu’il a lui-même créées.
Pour Julian, Leverage Shares est une entreprise innovante dans le domaine de la finance et de la fintech, et il se réjouit toujours de partager les prochaines grandes avancées avec les investisseurs du Royaume-Uni et d’Europe.
Oktay a rejoint Leverage Shares fin 2019. Il est responsable de la croissance de l’activité à travers des relations clés et le développement de l’activité commerciale sur les marchés anglophones.
Il a rejoint LS après UniCredit, où il était responsable des relations avec les entreprises pour les multinationales. Il a également travaillé au sein de sociétés telles qu’IBM Bulgarie et DeGiro / FundShare dans le domaine de la finance d’entreprise et de l’administration de fonds.
Oktay est titulaire d’une licence en finance et comptabilité et d’un certificat d’études supérieures en entrepreneuriat du Babson College. Il est également détenteur de la certification CFA.
Sandeep a une longue expérience des marchés financiers. Il a débuté sa carrière en tant qu’ingénieur financier au sein d’un hedge fund basé à Chicago. Pendant huit ans, il a travaillé dans différents domaines et organisations, de la division Prime Services de Barclays Capital à l’équipe de recherche sur les indices du Nasdaq (plus récemment).
Sandeep est titulaire d’un master spécialisé en finance et d’un master en administration des affaires de I’Institut de technologie de Chicago.