Tesla Trades Like a Falling Knife, Yet It’s P/E Multiple Is Much Higher Than Its Comps

Tesla, Inc. (NASDAQ: TSLA) shares are down 68% YTD and 43% just during December 2022. Furthermore, the stock of the world’s biggest electric vehicle maker continues to be the focus of many investor conversations regarding its (horrible) price performance and valuation — and its implications for future stock market performance and valuation.

Tesla shares have been rocked by, among other things, fears that Founder and CEO Elon Musk’s attention has been diverted to Twitter; his massive stock sales to fund the Twitter acquisition; relatively slight declines in Tesla car production forecasts versus prior projections, particularly in China; and the shrinking P/E ratios that investors now attach to growth stocks due to central banks’ relentless monetary tightening actions.

A common refrain from Tesla bulls now is that the stock has fallen so far that it could almost be considered a value stock. Based on analysts’ consensus 2023 EPS projections of US$5.43, Tesla shares trade at only a 20.5x forward earnings multiple. In comparison, the S&P 500 Index currently trades at about 17.4x consensus 2023 earnings forecasts of about US$220 per share (which some investors believe may be too optimistic). 

A potential flaw in this argument is that while Tesla’s P/E multiple has fallen quite significantly, the stock still trades at a much higher valuation than other car makers, all of which are investing heavily in their EV businesses. General Motors Company (NYSE: GM)Ford Motor Company (NYSE: F)Toyota Motor Corporation (NYSE: TM), and Stellantis N.V. (NYSE: STLA) generally trade at mid-single-digit earnings multiples.

P/E MULTIPLES OF SELECTED AUTO MANUFACTURERSExchange/SymbolStock Price2023 Consensus EPS Forecast2023E P/E Multiple
Tesla, Inc.NASDAQ: TSLA$111.14$5.4320.5
General Motors CompanyNYSE: GM$33.55$5.975.6
Ford Motor CompanyNYSE: F$11.22$1.726.5
Toyota Motor CorporationNYSE: TM$136.54$16.768.1
Stellantis N.V.NYSE: STLA$14.02$4.453.2

As an aside, Tesla’s plummeting share price is putting extraordinary pressure on the stocks of start-up EV manufacturers like Lucid Group, Inc. (NASDAQ: LCID) and Rivian Automotive, Inc. (NASDAQ: RIVN). Investors showing limited tolerance for a company which may record net income of ~US$18 billion next year is heavily impacting stocks of companies in the same highly competitive industry which expect to record billions of EBITDA losses for at least a few years.

Tesla bulls likewise point to a rapid increase in Tesla short interest. As of November 30, about 77.64 million shares were sold short, more than triple the 23.49 million short interest in mid-July. The theory is that short sellers which recently initiated positions may soon be forced to cover, causing a jump in Tesla stock.

Source: marketbeat.com

However, only about 3% of Tesla’s float is currently shorted, well below the levels that meme stocks achieved. That still fairly modest quantity of shorting seems unlikely, by itself, to trigger a rally. Excessive levels of meme stock shorting as a percentage of the float seems to have caused periodic spikes in those names over the last two years.

SHORT INTEREST DATA OF SELECTED STOCKSExchange/SymbolStock PriceShares Sold Short as a Percentage of Float as of 11-30-22
Tesla, Inc.NASDAQ: TSLA$111.143.00%
GameStop Corp.NYSE: GME$18.3020.43%
AMC Entertainment Holdings, Inc.NYSE: AMC$4.0919.41%
Bed Bath & Beyond Inc.NASDAQ: BBBY$2.5153.90%
Robinhood Markets, Inc.NASDAQ: HOOD$7.727.13%

Tesla. Inc. last traded at US$111.14 on the NASDAQ.

Information for this briefing was found via Edgar and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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