Tesla (TSLA) has been one of the hottest stocks of 2020, with share prices skyrocketing 582% just this year. But at least one analyst says the electric vehicle company’s price is too high, contending it should be worth between $60 to $80 rather than more than $600 a share.
Gordon Johnson, founder and CEO of GLJ Research, told Yahoo Finance Live on Monday that Tesla’s lofty valuation will soon come crashing down, with a number of factors weighing on the company’s stock price.
Those include Tesla’s upcoming addition to the S&P 500, set for Dec. 21, which Johnson says could see shareholders who were putting money into the stock ahead of the anticipated event, pulling back, and the loss of government-backed EV (electric vehicle) credits from rival automakers.
Johnson believes Tesla’s stock should be viewed as akin to the likes of over-hyped stocks like cannabis company Tilray (TLRY), which saw a massive run up to nearly $150 a share in late 2018 only to fall back to $7.37 a share. He also puts Tesla in the same ranks as renewable energy company SunEdison, which filed for bankruptcy in 2016 after seeing its stock price rise higher than $32 a share only to drop 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 dollars, back to $5. They went from $2 to $300 back to zero,” Johnson said. “It does happen, and we think that Tesla is a prime candidate.”
Tesla’s stock is notoriously as polarizing as its CEO, Elon Musk. In November 2018, Musk told “Axios on HBO” that the company had been “single-digit weeks” away from death during the ramp-up in Model 3 production. Prior to that interview, in August 2018, Musk had tweeted that he was taking Tesla private at $420 a share and that funding was secured, even though 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 some eyebrows again when he decided to idle its Model S and Model X production lines for 18 days from Dec. 24 through Jan. 10. Johnson called the decision “baffling” in light of recent suggestions from Musk that Tesla needed to ramp up production.
“Just a few days ago, Elon Musk put out an email, an internal email that was leaked to the public, that said they were effectively production constrained, they needed to significantly increase production,” Johnson said. “… So I think it’s one of two things: a, being demand is a problem, or b, they need to retool or refurbish the model to make it more attractive.”
But not all analysts see Tesla as such as risk
Other analysts, however, see Tesla as a continued growth story. Earlier this month, the company tapped the equity markets to the tune of $5 billion to fill its “war chest” and ensure it can build out its factories and reduce its debt. In a recent research note, Wedbush analyst Dan Ives said that move alone helps cut down the bear case against Tesla.
“Musk and his red cape are raising enough capital to get the balance sheet and capital structure to further firm up its growing cash position and slowly get out of its debt situation, which throws the lingering bear thesis for Tesla out the window for now,” Ives wrote.
For his part, Johnson sees such bullish sentiment around Tesla as unfounded, suggesting Wall Street analysts have been purposely underestimating Tesla’s deliveries so that it will exceed expectations.
According to Johnson, the company estimates Q4 deliveries will come in at 180,000, while other analysts say the company will have lower numbers. That, Johnson says, allows Tesla to beat the broader street consensus, helping to boost the stock.
Outside of the S&P 500 and production issues, Johnson points out that Tesla is losing market share in both China to rivals jumping into the EV space, with market share in China standing at 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 “firing on all cylinders,” Ives said in a Dec. 13 note, Tesla’s flagship Giga 3 factory in Shanghai gives it “a major competitive advantage.”
Got a tip? Email Daniel Howley at email@example.com over via encrypted mail at firstname.lastname@example.org, and follow him on Twitter at @DanielHowley.
More from Dan: