Tesla is ‘prime’ candidate to see stock collapse after entering S&P 500, analyst says

Tesla (TSLA) was one of the hottest stocks of 2020, with stock prices soaring 582% this year alone. But at least one analyst claims the electric vehicle company’s price tag is too high, saying it should be worth between $ 60 and $ 80 rather than over $ 600 per share.

Gordon Johnson, founder and CEO of GLJ Research, told Yahoo Finance Live on Monday that Tesla’s high valuation would collapse soon, with a number of factors weighing on the company’s share price.

These include Tesla’s upcoming addition to the S&P 500, slated for Dec. 21, which Johnson says could see shareholders who were putting money into the stock ahead of the scheduled event pull out and the loss of the electric vehicle (electric vehicle) supported by the government. credits from competing automobile manufacturers.

Johnson believes Tesla shares should be seen as over-exaggerated stocks like cannabis company Tilray (TLRY), which saw a massive increase of almost $ 150 per share in late 2018, only to drop back to $ 7.37 per share. action. It also puts Tesla in the same ranks as renewable energy company SunEdison, which filed for bankruptcy in 2016 after seeing its share price rise by more than $ 32 per share to fall 99% in 12 months.

“You’ve seen this before. I know it sounds crazy, look at Tilray, look at SunEdison, look at Suntech, some of these stocks, they went from $ 5 to $ 300, back to $ 5. They went from $ 2 to $ 300 to zero, ”Johnson said. “It does happen, and we think Tesla is a prime candidate.”

SpaceX owner and Tesla CEO Elon Musk arrives on the red carpet for the Axel Springer Media Awards in Berlin, Germany on Tuesday, December 1, 2020 (Hannibal Hanschke / Pool via AP)

Tesla’s action is notoriously as polarizing as its CEO, Elon Musk. In November 2018, Musk told “Axios on HBO” that the company was “weeks away from death” when the Model 3 ramped up production. Prior to this interview, in August 2018, Musk tweeted that ‘it deprived Tesla of $ 420 a share and that the funding was secured, even if it wasn’t. The Securities and Exchange Commission sued Musk over the tweet, and he and Tesla agreed to pay $ 40 million in penalties.

This year, Musk may have raised his eyebrows again when he decided to shut down his Model S and X production lines for 18 days, from December 24 to January 10. Johnson called the move “puzzling” in light of Musk’s recent suggestions that Tesla needs to ramp up production.

“Just a few days ago Elon Musk sent an email, an internal email that was leaked to the public, saying that they were indeed limited in production, that they needed to dramatically increase production,” Johnson said. “… So I think that’s one of two things: a, since demand is an issue, or b, they need to retool or refurbish the model to make it more appealing.” “

But not all analysts see Tesla as a risk

Other analysts, however, see Tesla as a story of continued growth. Earlier this month, the company tapped the stock markets to the tune of $ 5 billion to fill its “war chest” and ensure it can build its factories and reduce its debt. In a recent research note, Wedbush analyst Dan Ives said that this move alone is helping reduce the bear case against Tesla.

“Musk and his red cape are raising enough capital for the balance sheet and capital structure to further strengthen his growing cash position and slowly get out of debt, which casts the lingering bear thesis for Tesla down. window at the moment, “Ives wrote.

NOVEMBER 17, 2020: Tesla, Inc. will join the S&P 500 stock index prior to trading on Monday, December 21, 2020. - File photo by: zz / STRF / STAR MAX / IPx 2020 08/14/20 Tesla Car Dealership in the center -City of Manhattan, New York City.  (New York)

Tesla, Inc. will join the S&P 500 Stock Index effective Monday, December 21, 2020, New York City. (New York)

For his part, Johnson sees such bullish sentiment around Tesla as unfounded, suggesting that Wall Street analysts have deliberately underestimated Tesla’s deliveries to exceed expectations.

According to Johnson, the company estimates fourth quarter deliveries will be 180,000, while other analysts say the company will have lower numbers. This, Johnson says, allows Tesla to beat the broader consensus on the streets, helping to increase the stock.

Apart from the S&P 500 and production issues, Johnson points out that Tesla is losing market share in China to its competitors entering the electric vehicle space, with a market share in China of 12.5%. compared to 25% earlier this year.

However, China still represents a massive growth opportunity for Tesla, according to Ives, who predicts the country could account for nearly half of its global sales by 2022. Even with domestic players in China “pulling all cylinders” “Ives said in a note that Tesla’s flagship Giga 3 plant in Shanghai gives it” a major competitive advantage. “

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