Tesla (NASDAQ:TSLA) has always presented a somewhat schizophrenic investment case.
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On the one hand, most of his income so far has come from selling cars. However, its valuation has nothing to do with that of other automakers, and this is where the split personality becomes evident. Indeed, the company led by Elon Musk is considered more of a technology company seeking progress in the fields of AI, autonomous driving and robotics.
The dual narrative has become particularly pronounced this year, as Barclays analyst Dan Levy noted ahead of the company’s third-quarter earnings release scheduled for Wednesday.
“Tesla enters its Q3 results with two contrasting ‘stories’, an accelerating AV/AI narrative supported by the compensation/re-engagement package offered by Elon, versus a declining fundamental backdrop with Q3 deliveries widely expected to be record volumes for some time,” the analyst said.
The stock has surged more than 30% since early September, fueled by renewed optimism around Musk’s “re-engagement” (including a proposed compensation package that could approach $1 trillion and his recent billion-dollar stock purchase) as well as strong, if potentially short-lived, fundamentals in the third quarter due to accelerated buying thanks to the expiration of the $7,500 tax credit. $ for electric vehicles in the United States on September 30.
Still, Levy believes recent gains have been driven less by near-term fundamentals and more by the broader AV/AI narrative, with investors continuing to view autonomous and AI opportunities as central to the story – despite uncertainty around the commercialization timeline. Although tangible progress on Robotaxi and Optimus remains limited, sentiment has been boosted by the ambitious “Mars-shot” steps outlined in Musk’s proposed compensation plan, which would require major advances in AV/AI and a much higher stock price.
At the same time, Levy remarked that “fundamentals don’t matter…until they matter.” Ultimately, they will regain importance to Tesla investors as the core automotive business plays a critical role in funding the company’s long-term AV/AI ambitions, particularly the “cash-intensive” process of scaling the robotaxi platform.
Heading into print, Levy leans “neutral to slightly negative.” Amid the recent rally, the analyst believes that outdated deliveries and strong third-quarter earnings expectations are largely reflected in the current stock price, so any mention of weaker fundamentals in the short to medium term beyond the third quarter could weigh on the stock.
“That said, any weakness may be short-lived, as we may subsequently see new enthusiasm build beyond the November 6 AGM call – which we hope will be a key event reinforcing Tesla’s future growth narrative,” Levy summarized.
Ultimately, Levy stays away, recommending an equal-weighted (i.e. neutral) rating, although he raises his price target from $275 to $350. Still, that figure sits about 20% below the current share price. (To see Levy’s track record, click here)
Levy’s thesis is consistent with the general view of Street; The stock boasts a Hold consensus rating, based on a mix of 16 Buys, 13 Holds and 10 Sells. Meanwhile, the average target of $366.35 suggests 12-month losses of around 17%. (See Tesla stock forecasts)
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Disclaimer: The opinions expressed in this article are solely those of the analyst featured. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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