Tesla shares fell slightly in early trading on Wednesday and remain firmly in the red following its subdued second-quarter earnings report late last month, but one Wall Street analyst continues to argue that recent moves do not reflect the automaker's long-term value.
Tesla (TSLA) The stock has lost nearly $140 billion in value so far this year, down more than 16%, due to shrinking profit margins, slowing electric vehicle sales and a broader shift toward autonomous driving and ai-related technological advances in traditional car manufacturing.
Yet while investors have largely abandoned the stock in droves this year as a result of the shift in focus outlined by Elon Musk earlier this spring, one Wall Street analyst sees it as the key to unlocking billions in value in Tesla stock.
“We continue to hold that Tesla's ai efforts are material to the stock, even at current prices,” said Truist Securities analyst William Stein, who reiterated his “hold” rating and $215 price target for the group despite its recent share price decline.
Stein argues that while investors “know that the majority of Tesla's current revenue and profits come from car sales and, increasingly, energy capture and storage,” that part of the business only accounts for about a third of its value.
Tesla's value lies in ai
“Based on our current estimates, which we don't consider particularly conservative, we see these companies worth $267 billion, or $75 per share,” Stein said. “That's just 35% of our price target for Tesla.”
Tesla posted a bottom line of 52 cents per share, a 43% drop from the same period last year that missed Wall Street forecasts, with revenue up 3% to $25.5 billion, thanks in part to a better-than-expected delivery count.
That didn't translate into firmer profit margins, however, and Tesla's gross margin of 14.6% not only missed Wall Street's forecast but was the lowest overall figure in at least five years.
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Tesla also deployed about 9.4 gigawatt hours of energy storage products during the three months ending in June, more than double the record 4.1 GWh reported during the previous quarter.
Stein argues that the remaining value comes from Tesla's advanced driver-assistance unit, which includes its full self-driving software, its robotics division and its computing services for training artificial intelligence, including its Dojo supercomputer.
Musk wants to compete with Nvidia
Musk himself touted the profit potential of ai technologies, particularly with regard to the group's ambition to deliver full self-driving software to its global fleet of nearly 7 million electric vehicles, and said capital spending would likely rise to around $10 billion this year as a result.
“We're going to double down on our efforts with Dojo and we see a path to be competitive with Nvidia with Dojo,” Musk told investors last month. “And I think we have no choice because Nvidia's demand is so high and it's obviously their obligation to increase the price of GPUs to the level that the market can bear, which is very high.”
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“I think we really need to make Dojo work and we will,” Musk added.
Musk also stressed the group's new technological future, telling analysts on the post-earnings conference call that “the world is heading toward fully electrified transportation” that includes not just cars but also planes and ships.
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“Anyone who doesn't believe Tesla will solve the problem of autonomous vehicles shouldn't own Tesla stock,” Musk said. “They should sell their Tesla stock.”
Truist's Stein agrees, saying he sees Tesla's ai projects as “significant for the stock.”
“We therefore argue that investors should spend some time investigating whether Tesla's longest-running ai project, which is generating current revenue and is already being used in the real world, actually works,” he added.
Tesla shares dipped 0.1% in premarket trading to open at $207.56 a share, a move that leaves the stock more than 18% lower than last month.
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