One of this year’s themes has been the rise of the EV (electric vehicle) maker, spearheaded by market leader Tesla (TSLA).
As the EV pioneer delivered a series of earnings beats and record deliveries, the market has reacted in kind. Heading into the final stretch of 2020, the stock is up by a massive 563%.
While Tesla has made meaningful strides forward, its market cap is now at $526 billion, baking in a huge amount of anticipated growth. In comparison, legacy auto giant General Motors’ (GM) market cap stands at $66 billion, almost 8 times less that of Tesla’s. Of course, investors are expecting Tesla’s expansion over the next few years to justify its mighty valuation, but Needham analyst Rajvindra Gill has doubts the company is up to the task, partly due to GM’s increased focus on its own EV segment.
Last week, GM’s CEO Mary Barra said the company is “going all out with EVs.” GM expects to boast 30 EV models by 2025 (compared to 20 by 2023), and is building new production facilities to accomplish its goals. Furthermore, the company will form a whole new marketing unit focused solely on the EV opportunity.
“This additional competition” said Gill, “Could hurt the steep sales ramp that Tesla needs to achieve in order to justify its valuation.”
GM’s expected price range for its assault on the EV sector will range between $30,000 (targeting Tesla’s Model 3) all the way up to “more exotic $100K+ options.” Gill argues it looks like a “direct move against all of Tesla’s key product lines, from the more-affordable Model 3 to the ‘ludicrous-moded’ Model S.”
For Gill, it all points to an uphill struggle for Musk and Co.
The 5-star analyst wrote, “Despite Tesla’s recent accomplishments, such as its quarterly profits in the past 4 quarters and record deliveries, we are bearish on the stock due to increasing competitive pricing pressure, increasing OpEx to support Gigafactory Shanghai (and later Europe) and Model Y ramps, and the automaker’s history of profitability issues.”
Moreover, “we expect the company to experience obstacles and setbacks as it scales manufacturing of the Model Y and Cybertruck. We do not believe the company has sufficient earnings leverage to justify its high multiple,” the analyst added.
Accordingly, Gill rates Tesla shares an Underperform (i.e. Sell) without suggesting a price target. (To watch Gill’s track record, click here)
What does the rest of the Street think? Looking at the consensus breakdown, opinions from other analysts are more spread out. 10 Buys, 9 Holds and Sells, each, all add up to a Hold consensus rating. The view is conclusively downbeat where the share price is concerned. At $390.13, the average price target suggests shares will decline by 30% over the next 12 months. (See TSLA stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.