Could the Tesla share price reach $1,290?

HSBC’s analysts think the Tesla share price overvalues the company, but Elon Musk thinks the stock could be worth $4trn. Who’s right?

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The Tesla (NASDAQ:TSLA) share price has fallen by around 15% over the last month, and analysts at HSBC initiated coverage on the stock with a ‘reduce’ rating and a $146 price target. That’s significantly lower than the current $215 level.

According to famed US investor Ron Baron, though, the company could worth $4trn over the next decade, implying a price of $1,290 per share. So should investors like me consider buying or look elsewhere?

The bear case

I’ve seen people saying that HSBC’s bear case around the stock is based on the idea that it has significant ‘key man’ risk around Elon Musk. But I don’t think that’s an accurate representation.

As I read it, the issue is to do with Tesla’s price. With a $682bn market cap, the market is valuing the company higher than Toyota, Ferrari, Stellantis, Honda, Ford, and General Motors combined!

That might be fair enough – Tesla is certainly no ordinary car company. But the analysts think the current price already reflects the expectation that it will succeed in a number of those areas.

In other words, there’s no upside for investors even if supercomputers, robotaxis and humanoid robots all go to plan. All there is at the moment is risk if they don’t.

The bull case

Ron Baron thinks the business could be worth $4trn after a decade – and Elon Musk agrees. This is based on the idea that Tesla is a clear leader in a growing industry and has a number of advantages over its rivals.

The company has a bigger manufacturing capacity, its employees aren’t unionised, and its installed base gives it an advantage when it comes to collecting data. All of this gives the firm an edge over its rivals.

Even if demand for electric vehicles is slowing (as the last few months have indicated), this might just widen the gap between Tesla and its competitors. The company is scaling up into a growing industry as other manufacturers are pulling back.

The central idea behind the bull thesis, in my view, is the fact that nobody else can do what the business is doing. And while the short-term outlook might be uncertain, the stock is set to be a winner for the long term.

Time to consider buying?

According to Elon Musk, to reach the $4trn valuation, Tesla will need ‘to knock the ball out of the park several times’. The CEO believes the company can do it, but that comment indicates there’s a good deal of risk here.

To me, the case for thinking Tesla is in a stronger position than its rivals is pretty convincing. I don’t think the company has any meaningful competitors for a lot of what it aims to achieve.

The challenges I’m more concerned with are to do with the company’s ability to implement its innovations. The firm has a record of optimistic predictions and there are also regulatory issues to overcome, which might be beyond its control.

As a result, I’m looking for a larger margin of safety for Tesla shares. I’m impressed by the business, but I think there are better opportunities available right now from a risk/reward perspective.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Stephen Wright has positions in General Motors. The Motley Fool UK has recommended HSBC Holdings and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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