Shares of the electric-auto maker dropped more than 60% last year. And shares are off another 12% Tuesday to 108.10. That wipes out gains going back to 2020. Tesla stock investors, including Elon Musk himself, are down a massive amount.
What changed? Investors finally realized Tesla is “now officially a car company,” says Nicholas Colas of DataTrek Research. And for that reason, it may deserve to trade like one. And that could mean it’s only worth 30 a share — or 72% less than it’s worth now.
“General Motors (GM) and Ford (F) have market caps of $49 and $45 billion respectively. Tesla’s market cap is $396 billion. Let’s say Tesla deserves to be worth GM and Ford combined, for a market cap of $94 billion. That would put TSLA’s stock at 30 a share,” Colas says.
Tesla Stock Shocks S&P 500 Investors
Tesla is already on some investors’ “avoid” list in the S&P 500.
“This stock was propped up by a stimulus-filled economy that shot its market cap into an extremely lofty trillion valuation and it really was a ‘story’ stock as many rallied behind Musk and the product they have,” said Ken Mahoney, CEO of Mahoney Asset Management. “While certainly Tesla is still an attractive stock over the long term, with Musk selling so heavily and often, and investors seeing him gear his focus toward Twitter, it is to no surprise why it is down about 60% this year.”
But how low can this stock go, really?
Scenario #1 (Most Bullish): Analysts Are Right And Stock Jumps 114%
If you listen to the Wall Street analysts, Tesla stock is one of the biggest bargains in the S&P 500.
The average Wall Street analyst thinks Tesla will trade for 235.85 a share in 12 months. If they’re right, that would signal a 114% rally in the stock. That would make Tesla the third-best performing S&P 500 stock next year after Dish Network (DISH) and Warner Bros. Discovery (WBD). It would also put more than $400 billion back into Tesla investors’ pockets.
Sound too far fetched? At least one computerized AI model thinks Tesla stock is worth even more than that. Trefis, a system that breaks down what a company is worth based on the sum of its parts, says Tesla stock is worth 217 a share (keep in mind that’s down from 270 in just two weeks. That means it’s due to rally more than 96% — an even more bullish call than analysts. Trefis makes this forecast on the assumption that Tesla’s energy generation and storage business only accounts for 0.5% of the stock’s value.
Scenario #2 (Less Bullish): Tesla Trades Like Apple And Is Somewhat Fairly Valued
Don’t want to take Wall Street analysts’ word for it? You might think Tesla deserves to trade like Apple.
Apple is trading for 20.2 times its expected earnings in 2023. Tesla, valued the same way, is worth 108 a share, or within 2% of where it is now. But what if you think Tesla deserves to trade higher since it’s growing faster?
Another way to put a price tag on Tesla is using a PEG ratio similar to Apple (AAPL).
What’s a PEG ratio? It’s a way to value stocks that might have higher P-E ratios because the companies are growing faster than other. The PEG is a stock’s P-E ratio divided by its expected growth rate. The ratio helps you price a stock in a way that accounts for its high growth.
And for Tesla, a good comparison might be Apple. In many ways, Apple has already achieved what Tesla wants. And Apple’s PEG ratio is 2. Applying that same PEG to Tesla yields a stock price of 311. If that’s right, it means Tesla stock still has 182% upside. Tesla’s PEG valuation, though, hinges on the company hitting 29.2% average annual growth. Analysts think Tesla’s revenue will rise 54% this year and 38% next year.
Scenario #3 (Negative): Tesla Craters 48% To Match S&P 500
Tesla shares have traded like they’re something special for years. But what if Tesla is just another S&P 500 stock? Bad things.
The S&P 500 is only trading for 17.6 times its earnings in the past 12 months. That’s a fraction of Tesla’s lofty 33.2 P-E. What would happen if Tesla traded like the S&P 500? Get ready for a 48% crash beyond the pain you’ve already seen.
If Tesla trades for just 17.6 times its trailing adjusted profit of $3.24 a share, that means it should actually only be worth 57.02 a share. That’s not far off the lowest 12-month price target of any Wall Street analysts at 85 a share.
Scenario #4 (Scary): Tesla Crashes 83% And It’s Just Another Automaker
What’s the worst outlook for Tesla investors? Ironically for the shares to trade like other U.S.-based automakers.
Ford Motor (F) only trades for 5.1 times its trailing earnings. And General Motors (GM) trades for just 5.9 times. Taking the midpoint of 5.5 and applying it to Tesla’s trailing earnings yields a value of just 17.82, or a devastating 84% discount to Tuesday’s price. To be sure, not a single Wall Street analyst sees this happening.
But the idea is not as far-fetched as it was. “Let’s rewind the clock to January 2020, before all the hype around disruptive technology. TSLA was trading for 30/share then, split adjusted,” Colas said. “Yes, it is a much more profitable company now. But, with that comes the ability to value it on earnings and compare it to other companies in the same industry.”
Tesla stock has dropped so much it’s no longer among the top 10 most valuable companies in the S&P 500. The company is only worth $347 billion now. But as the twelfth most-valuable S&P 500 stock, its future still matters.
It’s just the future is very unclear.
How Low Can Tesla Stock Go?
How different forecasts size up Tesla’s outlook versus Wednesday’s midday price of 109.66
|Scenario||Value of Tesla stock||Implied price % ch.|
|PEG ratio (similar to Apple)||311.27||182%|
|Trefis AI model||217||96.7%|
|Wall St. analysts’ 12-month target||235.85||113.8%|
|PE ratio (similar to Apple)||107.87||-2.2%|
|S&P 500 valuation*||57.02||-48.3%|
Sources: S&P Global Market Intelligence, IBD, * – based on trailing P-E