Is Tesla Cheap After Recent Pullback? Analyst Says Stock Discounts High Expectations, Low-Probability Outcomes

The Tesla, Inc. TSLA investment story hangs on "high expectations and low-probability" outcomes, a bearish analyst recently said.

Stretched Valuation: Tesla's valuation has climbed over 12 times from four years ago to $570 billion currently, and "one really has to wonder" what would justify the valuation, said Drew Dickson, founder of Albert Bridge Capital, the Financial Times reported.

Dickson, who is short on Tesla, wondered whether deliveries or the success of the company's self-driving software would adequately justify the valuation.

The bearish analyst also weighed in on Tesla's recent price cuts. He disagreed with the view among Tesla bulls that the price cuts would kickstart demand and CEO Elon Musk's assertion on the March 1 Investor Day that demand was extremely elastic.

Dickson said he believes that Tesla chose to avoid so many important value drivers at the Investor Day. He also lamented the fact that Tesla did not make a mention of a new mass-market vehicle and the Cybertruck.

The fact that Tesla did not discuss the price cuts or delivery metrics, even in the Q&A session, was an indication that the action was not bringing in the desired effect, he said.

See Also: Everything You Need To Know About Tesla Stock

Key Metrics Disappoints: The March quarter deliveries update confirmed this, the analyst said. He noted that despite the nearly 10%-15% sequential price cuts, deliveries rose only 6% sequentially. The company also overproduced during the quarter, growing inventories, he said.

Tesla also faltered on the margin front, reporting automotive gross margin, excluding regulatory credits and leases, of 18.3%, down from 29.7% a year ago, Dickson said. The metric trailed the company's guidance of at least 20%, he noted.

The company said in the 10-Q filing that the higher cost per unit was partially offset by manufacturing credits earned as part of the IRA. If not for this the metric could have been 16.9%, the analyst said.

Dickson estimates the profit per vehicle of Tesla may have dropped from $15,000 in 2022 to $7,500. This would mean a 12.5% price cut nearly halved the profits, he said.

"Selling cars is a hard business," the analyst said. In order to even stand still, Tesla has to keep refreshing and expanding its product line, he said, adding that then there are economic realities that could impact players across the industry.

Skeptical On FSD: The analyst also took exception to Musk's comment on the first-quarter earnings call about selling cars at zero profits near term and then making up for it in the future through autonomy.

He suggested that FSD could be a long time away. "My opinion is that fully autonomous roads remain decades away and that current demand even for "free" autonomous software is lower than Tesla fans believe," he added.

Tesla shares ended Friday's session 5.50% higher at $170.06, according to Benzinga Pro data. The stock is up 38.1% year-to-date but has come back notably off the year's highs of $217.65.

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