Tesla, Tesla, Tesla: Where Does The Rally End?

Tesla, Tesla, Tesla (TSLA). It’s the hottest stock on the market, and people can’t stop talking about it. TSLA is an enigma to the markets and the bane of traders. The markets have made and lost billions on this equity since the beginning of the year, whether you were stubborn short-seller or a FOMO buyer. TSLA had run-up 400% since June but has fallen more than 20% since its high a couple of days ago.

Tesla, Inc. Price, Consensus and EPS Surprise

Tesla, Inc. price-consensus-eps-surprise-chart | Tesla, Inc. Quote

The stock is trading like Bitcoin did in 2018, but will this stock exhibit the same fall? Does TSLA have the fundaments to support its recent rally?

What we have to consider when assessing the most recent price surge is what initiated it, and why did it accelerate in the fashion that it did? The price swell started with this electric vehicle giant reporting record delivery figure in the last three quarters of 2019, which unexpectedly met Elon’s ostentatious promise of 350,000 – 400,000 deliveries. The Shanghai Gigafactory has finished ahead of schedule, a Berlin Gigafactory is expected to start production by next year, the Model Y is being commercially produced ahead of schedule, and the company blew its Q4 estimates out of the water.

Elon and his brainchild, Tesla, are finally keeping and exceeding their promises, something that this overzealous corporation has had a difficult time doing in the past.

All this good news has been progressively priced-in over the past 8 months and has induced many short squeezes that have caused this stock to slingshot up. These hyperfast upward movements caused FOMO (fear of missing out) across the retail investing spectrum, and people rushed to get into this stock as it continued to skyrocket. Some persistent Tesla bears continue to put on short positions on the inclination that this stock couldn’t go up anymore only to be wrong, hit their loss limits, and be forced to repurchase the stock at a higher price for a loss. This is what we call a short squeeze, and it has further exacerbated the rally.

Finally, TSLA appears to have hit a resistance level and has bounced hard off of it with gravity appearing to be pulling it back down to earth. I don’t think this stock has enough of a proven track record to be worth $160 billion, but its long term growth trajectory could make this stock one of the most valuable companies in the world – if it is able to continue keeping its promises.

Comparables

Tesla’s peak valuation was only $40 billion short of the largest automaker in the world, Toyota (TM), who sold 10.7 million cars in 2019, roughly 30 times as many cars as Tesla delivered last year. The primary difference is that Tesla sold 50% more vehicles in 2019 than the prior year, and Toyota sold only 1.4% more.

The US’s Big 3 automakers Ford (F), General Motors (GM), and Fiat Chrysler (FCAU) have had a tough few months. These firms have seen both declining sales and profitability in Q4. But does this have any bearing on how Tesla is doing or going to be doing? The answer is no. Tesla is undoubtedly taking market share from these companies, no matter how marginal and its growth trajectory appears to be uncorrelated with their performance.

I would categorize this revolutionary EV enterprise as Tech and should be valued like any other fast-growing tech company. We should be comparing Tesla to companies like Amazon (AMZN), Google (GOOGL), and Facebook (FB), inventors, and pioneers of businesses that didn’t exist before they did.

I am not going to say that EVs didn’t exist before Tesla, but it has indisputably put this space on the map. Tesla has made electric vehicles cool and is ahead of the competitive curve on almost everything it touches, whether its batteries, autonomous driving, or electric powertrain. If this EV giant is able to maintain its competitive positioning, it could lead the automotive world one day.

When comparing TSLA with AMZN on an enterprise value to EBITDA metric, the companies are right in line with each other. TSLA is correcting itself down to its true fair value, which I believe sits around $700 at the moment.

Take Away

Tesla is making waves in the consumer and financial markets alike. If this firm can effectively penetrate the Chinese market and get the Berlin Gigafactory operational by next summer (as promised), TSLA shares will have a much more extensive upside

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Tesla, Inc. (TSLA): Free Stock Analysis Report
 
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