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1 “Magnificent Seven” stock could soar 1,027% or plunge 87%, according to some Wall Street analysts. Who is right ?

You’re here (NASDAQ:TSLA) has divided Wall Street since its IPO in 2010. Its CEO, Elon Musk, had big ambitions and very few believers when he branched out into making and selling electric vehicles (EVs), but he has repeatedly proved the skeptics wrong.

As a result, Tesla stock has generated a whopping return of over 15,000% over the past 14 years. She is a member of the “Magnificent Seven”, a prestigious group bringing together the world’s largest technology stocks.

That buy-in is under threat, however, as Tesla shares trade 58% below their all-time high as Musk and his team grapple with slowing demand for electric vehicles and an increasingly competitive environment.

Wall Street remains divided on Tesla’s future

Despite all of Tesla’s successes, Wall Street remains divided on the company’s prospects. Its stock is trading at $177.46 as of this writing, so keep that in mind as you digest the numbers below.

Ark Investment Management, led by tech investor Cathie Wood, thinks Tesla stock could climb 1,027% from here to $2,000 per share. On the other hand, GLJ Research thinks the stock could dive 87% at just $23.53 per share.

Ark’s focus is on Tesla becoming a leader in autonomous driving, while GLJ simply thinks the company’s valuation is far too high right now, and that underscores a recent decline in sales of electric vehicles which could be a sign of things to come. So, who is right ?

Tesla faces headwinds in its electric vehicle business

Tesla is coming out of a difficult 2023. Although it met its delivery target of 1.8 million vehicles, it had to reduce prices by more than 25% (on average) to stimulate demand. This year is shaping up to be even worse because Musk hasn’t even offered a delivery forecast, leaving analysts to estimate the number could be as low as 2.2 million.

That would equate to growth of just 22% year-over-year, which is well below Musk’s long-term goal of 50% per year. But deliveries Shrunk 9% during the first quarter, Tesla is therefore off to a difficult start.

Tough economic conditions have forced consumers to cut back on spending, and high interest rates have made taking on debt very expensive for those looking to finance a new car. This hurts demand for electric vehicles in general, prompting manufacturers like Ford And General engines to cut billions of dollars of investment in their future production plans.

Despite the retreat of traditional automakers, Tesla still faces growing competition from other electric vehicle makers. Those based overseas could pose the greatest threat, such as those based in China. BYD, which sells an entry-level electric vehicle for just $9,700 in its domestic market. This model could soon make its way to Western markets like the UK and Europe, which have until now been happy hunting grounds for Tesla.

To combat this threat, Tesla recently announced plans to begin producing its own entry-level electric vehicle in 2025. It could sell for as little as $25,000, and while that’s not as cheap as BYD’s offering, it should be cheap enough. to attract many low-end consumers given Tesla’s reputation as a premium electric vehicle brand.

A blue Tesla car driving on an open road.A blue Tesla car driving on an open road.

Image source: Tesla.

Tesla’s long-term success could rely on autonomous driving

Musk recently told investors that they should think of Tesla as an artificial intelligence (AI) or robotics company, not an automaker. Ark Investment Management agrees because the basis of its $2,000 price target is the company’s fully autonomous driving (FSD) technology.

FSD is still in beta mode and there is no official date for its widespread release. However, it is expected to eventually be available to all Tesla customers on a monthly subscription basis, and Musk has also considered licensing it to other automakers. On top of that, he wants to build an autonomous ride-sharing network at Tesla (think Uber but without a human driver), so that customers can generate revenue with their autonomous vehicles when they are not using them.

But FSD could prove very useful when installed in Tesla’s upcoming robotaxi called Cybercab, which is expected to be revealed in August. These vehicles could be deployed full-time within a ride-sharing network, operating 24 hours a day to generate a revenue stream with a very high profit margin. They could also be sold to other ride-sharing companies like Uber or Lyft.

Ark estimates that Tesla will generate more than $1 trillion in revenue by 2027, including $448 billion from autonomous ride-hailing services and Cybercab. To be clear, this is extremely ambitious given that neither product has hit the market yet, not to mention that it would require Tesla to increase its revenue tenfold over the next three years, which seems virtually impossible given the slowdown in its core electric vehicle business. .

So which Wall Street analyst is right?

It’s hard to refute GLJ Research’s claim that Tesla is overvalued. Based on trailing 12-month earnings per share of $2.73 and current stock price of $177.46, the company is trading at a price-to-earnings (P/E) ratio of 65.0 . It is double the P/E ratio of 29.5 of Nasdaq-100 hint.

Does Tesla stock deserve to trade at twice the average P/E valuation of its big tech peers given its earnings almost halved in the first quarter of 2024 due to slowing electric vehicle sales and price cuts? It certainly doesn’t sound rational, but Tesla has historically traded at a premium to the broader market precisely because of the technologies underway. By the way, they have expanded beyond FSD and robotaxis to include humanoid robots as well.

That said, if Tesla were to trade in line with the Nasdaq-100 P/E ratio, its stock would be expected to fall 55% to $80.54.

With this in mind, it appears that GLJ Research is probably closer to the target with its $23.53 price target than Ark is with its $2,000 target. However, I don’t think there is any of them So Tesla plunges 86% from here because it’s still a strong company with trucks full of exciting future potential.

Still, it’s hard to justify buying Tesla stock today. It might be best to wait until we know more about the low-cost electric vehicle and Cybercab later this year. These products could dictate the direction of the stock for the foreseeable future.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends BYD, Tesla and Uber Technologies. The Motley Fool recommends General Motors and recommends the following options: Long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.

1 “Magnificent Seven” stock could soar 1,027% or plunge 87%, according to some Wall Street analysts. Who is right ? was originally published by The Motley Fool

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