Why This Analyst Thinks Tesla Stock Is Worth Far Less Than Its Current Valuation

Following Tesla Inc.'s TSLA third-quarter deliveries update, an analyst at Needham thinks the stock's valuation is indefensible.

Needham: Model S and X Fail to Pick Up, Valuation Unattractive: Tesla's Models 3 and Y deliveries of 232,000 exceeded Needham's estimate of 217,000, but Models S and X deliveries of 9,280 were way below the firm's 28,000 estimates, Needham analyst Rajvindra Gill said in a note.

Softness seen in Models S and X during the past few months was previously thought of as due to the slowdown in the production of these models amid retooling of the assembly lines for a model refresh and facelift, the analyst said. Production has been lower for about nine months now, he added.

The rally in Tesla shares in the past four months has made the current valuation even less compelling, raising downside risks, Gill said.
Needham's sales and earnings per share expectations will likely go lower on the model mix shift, with additional lower ASP vehicles unable to make up for the loss of sales of higher ASP vehicles, the analyst said.

The firm's 10-year discounted cash flow-based share value estimates suggest a valuation closer to $430, or roughly 45% down from current levels, the analyst added.

"We do not believe the company has sufficient earnings leverage to justify its high multiple," Needham said in the note.

Related Link: Why Tesla's Q3 Numbers Are 'Eye Popping' and Hard to Poke Holes In

Loup Says Tesla Is "True Growth Story:" Tesla is a true growth story and the company's long-term growth story transcends EVs and will eventually include more energy capture, storage, FSD, HVAC, and maybe even VTOL and robots, Loup Funds Managing Partner Gene Munster said.

The 73% year-over-year growth in third-quarter deliveries represented a slowdown from the 122% growth in the second quarter, due to a 40% higher difficult comps, the analyst noted.

Tesla delivery growth of 73% compares to an average of 27% year-over-year decline for General Motors Company GM, Ford Motor Company F, Honda Motor Co Ltd HMC and Toyota Motor Corp TM, Munster said.

"While chip shortages dragging on production and inventory is the biggest factor in the drop in sales for traditional automakers, the loss of share to EV makers (mostly Tesla) is no doubt compounding the delivery decline for the broader industry," Loup noted.

Needham's Gill has an Underperform rating for Tesla.

TSLA Price Action: Tesla shares are up 0.16% at $781.80 Wednesday afternoon.

Photo: Tesla Model S courtesy of Tesla