Edward Jones Initiates Coverage On Tesla: 'EV Leader, But Competition Increasing'

Another Wall Street analyst has initiated coverage of Tesla Inc TSLA on Wednesday. Like many other analysts and investors, he doesn’t quite know what to make of Tesla at its current valuation.

The Tesla Analyst: Edward Jones analyst Jeff Windau initiated coverage of Tesla with a Hold rating.

The Tesla Thesis: Windau said Tesla is the clear leader in the global electric vehicle market up to this point. The company will soon face a tidal wave of new competition, however, and its $800 billion market cap is already pricing in a tremendous amount of long-term growth and huge successes in ventures outside of auto sales.

“We believe that the market is pricing in 30% to 40% growth in earnings annually on average over the next decade, which will require successful development and launch of products like autonomous driving, semi-trucks and low-cost sedan,” Windau wrote in a note.

Windau said Tesla will only maintain its current valuation if the global EV market continues to grow rapidly, Tesla maintains significant market share as more and more competitors come online and Tesla’s new business ventures, including solar energy, insurance and AV technology, are major successes.

Related Link: Michael Burry To Tesla Investors: 'Enjoy It While It Lasts'

Windau said one major challenge Tesla will face in the next decade will be funding its growth efforts, which is even more difficult given the company’s non-investment-grade credit rating. If funding becomes an issue down the road, he said Tesla’s growth trajectory could become threatened.

In the near term, Windau said Tesla shares will likely continue to be extremely volatile.

Benzinga’s Take: Tesla’s market cap has grown to be nearly the size of the entire legacy auto market despite the fact that Tesla represents only a small fraction of global auto sales.

However, shorting stocks that are potentially caught in a market bubble can be extremely dangerous given irrational exuberance can last for years and the ultimate top is only reached once investor enthusiasm has died down.