New Constructs Rates Tesla’s Stock a “Strong Sell” with a Fair Value of $28 per share

Analyst Ratings Coverage

News Construct Research, an investment research firm, has issued a Strong Sell rating on Tesla, the electric vehicle (EV) manufacturer, and set a “true value” target price of $28 per share on the stock. According to the report, Tesla’s Q1 results, announced on April 19, disappointed analyst estimates resulting in the company’s shares falling by 10 percent.

David Trainer, the founder and CEO of News Construct Research, believes that Tesla remains hugely overvalued, pointing to a $517 market cap that still amounts to twice the combined valuations of Toyota and Volkswagen. Trainer argues that Tesla’s stock is headed for disaster, as the flood of new, mostly bargain-priced models issued by every big competitor will substantially lower Tesla’s profitability going forward.

Using discounted cash flow analysis, Trainer estimates that Tesla must grow sales at a 28% compound rate through 2031 and achieve after-tax operating margins of 13%, 80% higher than Toyota’s current level of 7%, to merit an over half-a-trillion valuation. If it hits those supercharged metrics, Tesla would garner $100 billion in net operating profit by 2031, 60% more than Toyota, Stellantis, GM, and Ford all make combined, ascending to what Apple has earned in the past four quarters. Trainer believes this is an impossible task.

Trainer’s “most likely” scenario holds that Tesla will indeed get much bigger in the years ahead but generate only slightly more profit than it books today. The report suggests that Tesla will grow sales fast, at between 20% and 30% a year in 2023, 2024, and 2025, and at 10% in the five out years. However, its operating margins will fall from 13% in 2023 to 7% in the years beyond. Hence, its earnings won’t grow much from here, despite fast-waxing sales.

Trainer argues that Tesla’s stock is headed for disaster and that the flood of new, mostly bargain-priced models issued by every big competitor will substantially lower Tesla’s profitability going forward. The report suggests that Tesla remains hugely overvalued and that its stock is worth only one-sixth its current price. The report is a cautionary tale for investors in Tesla and suggests that they should approach the company with a healthy dose of skepticism.

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