Last week, ending 6 June, was a shocking one for the Tesla (NASDAQ: TSLA) share price. It fell 15% as CEO Elon Musk’s spat with Donald Trump dominated the headlines.
Some are voicing genuine fears that President Trump could reduce or remove electric vehicle (EV) subsidies. And that could cause real pain for Tesla.
We’re now looking at a 27% stock price fall year to date, though it’s still up 400% over a volatile past five years.
What happens next?
So where do the financial experts think it might go next? I asked ChatGPT, and it suggested a forecast price range of $24 to $800. I need to be a bit more selective.
Morgan Stanley analysts appear to offer a clearer view, sticking to a price target of $410. That’s a 39% premium to last week’s close. But they suggest things could get worse before they get better, and stress the long-term view.
The firm reckons many investors make a key mistake when they value Tesla as solely an EV maker. They rate the car business itself as justifying only a $75 share price, which would bring the forecast price-to-earnings (P/E) ratio down to 47. That’s still more than twice the P/E for China’s BYD. Hmm, and nearly 10 times the Volkswagen P/E in Germany.
Price range
Pinning down a useful valuation measure for a pioneer like Tesla is clearly not easy. And I think that explains the reason I’m seeing broker price targets generally ranging from around $100 to over $500.
These are all relatively short-term targets so far. With a more distant horizon, Gov Capital puts its five-year target at $840. Another near-trebling of the Tesla stock price in the next five years? That would do me.
We see a general Buy consensus, but it’s by no means unanimous. In fact, close to a third of the recommendations I can find have the stock as a Sell. But the value of price targets and recommendations is variable at best. So what is there out there to back them up?
EV sales stumble
Tesla car sales have taken a tumble in parts of the world this year. They’ve dipped sharply in China, not surprisingly. European sales have plunged too, in a market that’s seeing EV growth. And in April, BYD registered more EV sales in Europe than Tesla for the first time ever.
Against that background, a forecast 2025 earnings per share (EPS) fall of 20% is not surprising. It would put the P/E up at 185 based on the current share price. But as Morgan Stanley so rightly pointed out, valuing Tesla essentially on earnings from car sales could be a big mistake.
Three years and more
Forecasts out to 2027 show EPS soaring 120% from the expected 2025 dip. And that could bring the P/E down to the low 80s, which still looks a bit steep. But even then, surely the true potential could be another decade or more more away.
This sums up how genuinely hard it is to put a valuation on Tesla stock today. But I think investors prepared to take a risk on the next generation of AI-based techology should seriously consider it.
