These Analysts Love Tesla's Potential, But Balk At Its Valuation

Tesla Inc TSLA has been the talk of the town on Wall Street in recent weeks, and analysts are weighing in on Tesla and CEO Elon Musk’s controversial proposal to take the company private on a seemingly daily basis.

Impressive Production

Evercore ISI analyst George Galliers visited Tesla’s Freemont facility to get a glimpse of how Tesla’s day-to-day operations are running behind the scenes of the Wall Street drama, and he said Thursday production seems to be going very smoothly.

“While downtime and maintenance continue to place constraints on production, we did not see anything that would suggest Tesla is not able to produce 5k Model 3 per week today and at least 6k Model 3 a week very shortly,” Galliers said in a note.

He said Tesla’s stamping facility and its infamous GA4 General Assembly structure (inside the tent) were the two most impressive parts of its operation from an industry perspective. He said GA4 Model 3 assembly involves just 43 steps/stations, roughly a fourth of the number of steps used in most traditional auto plants.

The Value Problem

But despite Galliers saying his visit made him incrementally more positive on Tesla stock, Tesla’s valuation is still a sticking point. Galliers reiterated his In-Line rating and $301 price target for Tesla's stock and said he would need to see significant improvement in Model 3 production rates and gross margins to justify a higher target price.

Bernstein analyst Toni Sacconaghi raised his price target Thursday following a reassessment of Tesla’s valuation, but he still says there’s no way to come up with a valuation anywhere near the $420 price Musk has suggested. Based on three different valuation models, the current climate in the tech sector and the projected likelihood Tesla will complete a deal to go private, Sacconaghi raised his price target to just $325.

“TSLA's current share prices implies margins and market share in 2050 that are modestly higher than luxury makers Mercedes and BMW,” he said.

Tesla's stock traded mostly flat Thursday. Sitting around $335.82 per share, it's now trading slightly below its price prior to Musk’s initial tweet about Tesla going private.

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