Why Tesla's 'Mindboggling' Valuation Is Difficult To Sustain Even Under Most Bullish Scenario

Notwithstanding Tesla Inc's TSLA recent strong fundamental performance, Wall Street analysts have invariably raised concerns regarding its meteoric valuation.

The Tesla Analyst: Bernstein's Toni Sacconaghi downgraded Tesla from Market Perform to Underperform and maintained the price target at $900.

The Tesla Thesis: Bernstein is bullish on the electric vehicle industry in general and the structural advantage the company may hold.

Sacconaghi said Tesla's margins could improve materially, premised on favorable mix shift, new local manufacturing facilities, autopilot deferred recognition and EV credits. Additionally, new businesses could confer option value.

The company also enjoys the distinction of being a leader in a huge underpenetrated market.

However, Tesla's "mindboggling' valuation," which currently measures up to the combined valuation of Toyota Motor Corp TM and VOLKSWAGEN AG/ADR VWAPY, is unprecedented for a large-cap stock outside of the tech bubble, Sacconaghi said. This is despite Tesla making 500,000 cars compared to the 20 million cars collectively made by Toyota and Volkswagen.

"We struggle to translate our positive views on Tesla as a business into an expected value that is north of ~$900/share," he wrote in the note. "Tesla now even looks expensive vs. large cap growth tech."

TSLA Price Action: Tesla shares traded around $1,532.43 at the time of publication.

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