Top Standpoint Research analyst Ronnie Moas has just made a controversial move on his auto stock recommendations. On October 5, Moas downgraded Tesla (NASDAQ:TSLA) from Hold to Sell while upgrading auto giant Ford (NYSE:F) to Buy. In fact, Moas believes Tesla shares can drop over 20% from current prices in the next year. Why? The stock is overvalued, writes Moas, who points out that rival auto manufacturers are hot on Tesla’s heels with their own electrical vehicle offerings.
“The list of companies that are shooting at Tesla right now is not a short one,” says Moas. “Anyone who thinks the German car manufacturers are going to sit on the sidelines and watch Tesla eat their lunch is mistaken.”
He continues: Most auto manufacturers trade at between 0.3X and 0.6X * sales Tesla is trading at 10 times the high end of that range and trading at least 3 to 5 years ahead of itself. This is a company that needs revenues between $50 bln and $100 bln in order to justify the current valuation right now. Their revenues are currently tracking at $12 bln for 2017 and $18-$20 bln for 2018. They will not turn a profit before 2019. The market is treating Tesla as if it is Amazon (AMZN) or Apple (AAPL) when in fact they have a lot more competition than Apple and Amazon have.
As for Ford, he is optimistic that there is “$2 in earnings per share potential looking out into 2018-2019”. Indeed Moas’ $15 price target on Ford works out almost 22% upside from the current share price.
Meanwhile, on the other end of the spectrum, we have Nomura’s Romit Shah. He has just initiated coverage on Tesla with the stock’s highest price target yet of $500. This works out at a huge 40% upside from the current share price- and easily beats the previous highest target of $464 from Berenberg Bank.
Shah, who has a success rate of 65% and an average return of 17.6% across his 175 stock recommendations, believes that the Model 3 production problems are temporary and don’t alter the fundamental bull picture. He says:
We forecast an unprecedented run-up in Tesla’s revenue ($8bn in 2016 to $58bn in 2021, equating to a five-year CAGR of 49%), easily one of the fastest ever by a multibillion-dollar company. We believe that Tesla (1) has an insurmountable lead in vehicle range per dollar; (2) benefits from what we believe is a largely inferior competitive field, which should help sustain current growth; (3) will overcome Model 3 production constraints; and (4) could generate mid- to high-20% gross margins by 2020.
Like Moas and Shah most analysts are very divided on Tesla’s outlook. Overall we can see that Tesla has a Hold analyst consensus rating on TipRanks. In the last three months this breaks down into 6 buy, 7 hold and 8 sell ratings. Given that Tesla is now trading at $356, the $313 average analyst price target translates into a 12% downside from the current share price.