Tesla shares have 25% upside, and electric cars are only part of that, says analyst
The Tesla share is not cheap when you consider the potential for its car business alone. That shouldn’t surprise anyone.
That’s the conclusion of Piper Sandler analyst Alexander Potter. Still, he’s a Tesla (ticker: TSLA ) bull, rating shares at Buy with a $280 price target. That’s more than 25% higher than today’s market price.
It’s not hard to see his point. Tesla stock is worth around $680 billion. That’s nearly three times the market capitalization of Toyota Motor ( TM ), the second most valuable automaker on the planet, and one of the largest and most consistently profitable.
Toyota American Depository Receipts trade at about nine times estimated calendar earnings in 2024. Tesla stock trades at 45 times.
Of course, Tesla has grown much faster. Unit sales are expected to reach around 1[ads1].8 million in 2023, an increase of about 40%. Toyota sales are around 10 million units a year. Even if Tesla sold 10 million units a year, it would still be valued at about $68,000 per vehicle, compared to about $485,000 per vehicle sold in the past 12 months. Toyota is valued at around $24,000 per vehicle sold.
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Tesla looks like a growing – and expensive – car company, but it’s more than that. “In our view, new revenue streams are a core aspect of [stock] thesis, hence our price target of $280,” Potter wrote in his report Monday evening.
Tesla also sells solar panels and battery storage products for residential customers. It also sells utility-scale battery storage products. Tesla also sells driver assistance software for up to $15,000 per vehicle. Selling a software-based product for that amount is unique in the passenger car industry. Tesla also has its moonshot option, its AI-powered robot Optimus, which CEO Elon Musk has said could one day become the most valuable part of Tesla.
“So my prediction is that Tesla’s … majority of long-term value will be Optimus,” Musk said at the company’s annual shareholder meeting in May. “And I am very confident in that prediction.”
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Potter also sees opportunities in things like heat pumps for homes. Tesla’s vehicle HVAC systems use heat pumps, and they are more efficient than conventional heating and cooling technologies.
The analyst values the auto business at $135 a share, or about $430 billion — nearly double the market value of Toyota’s equity. Potter values the rest of Tesla at $145 a share, or about $460 billion, for all the other stuff, including software and energy storage.
Potter’s price target of $280 is among the higher estimates on Wall Street, according to FactSet. The highest price target is currently $300 from New Street Research analyst Pierre Ferragu. The average price target is around $192.
Overall, about 50% of analysts who cover Tesla stock rate it a Buy. Average buy rating ratio for a share i
S&P 500
is about 53%.
Tesla shares closed up 1.7 percent on Tuesday. S&P 500 and
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Nasdaq Composite
rose by 0.2 and 0.4 per cent respectively.
Tesla stock has now risen for seven straight days, rising nearly 19% during that span.
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As for Tuesday’s rally, in addition to Potter’s upbeat note, Tesla investors digested wholesale data from China. Tesla produced about 78,000 cars in China in May, according to industry data providers, up from about 76,000 in April.
Wall Street expects Tesla to deliver around 445,000 units in the second quarter, up from 423,000 in the first quarter. About half of the 445,000 number will be produced in China.
Write to Al Root at allen.root@dowjones.com
