TSLA Stock Analysis: Is Tesla’s Astronomical Valuation a House of Cards?

Stocks to sell

Tesla (NASDAQ:TSLA) remains the world’s most valuable car company. Despite the stock being down almost 20% so far this year, it entered trade on February 19 with a market cap of $637 billion. This is the starting point for my TSLA stock analysis.

That’s more than twice the value of Toyota Motor (NYSE:TM), which sits in second at $306 billion. The second most valuable U.S. car company, Ford Motor (NYSE:F), is worth $55 billion.

But how big is Tesla, really? Tesla sales last year came to $96 billion. Toyota had $247 billion. Ford had $176 billion. Tesla saw nearly $15 billion in net income, but Toyota had over $16 billion. (Ford had just $4 billion.)

The question for today is, without Elon Musk, would Tesla still be worth a premium?

Tesla Strengths

Tesla earned its advantage over Toyota, and the rest of the industry, by building out the infrastructure for EV production and making it profitable.

But profitability is stalling. Auto revenue was no better in the fourth quarter, at $21 billion, than the year before. Services, including charges for the software running in Tesla cars, saved the quarter, adding 10% to total revenue.

This is the argument Tesla fans have always made, that it’s less a product company like Toyota and more a services business like Apple (NASDAQ:AAPL). Services at Apple represent just 19% of revenue.

Tesla fans also love its battery business, which was worth $6 billion last year. Tesla has a huge battery plant in Nevada, but the Inflation Reduction Act means competitors are building their own plants. Tesla is also assembling batteries made by Chinese giant CATL, which is building a plant in Michigan for Ford. CATL is worth an estimated $100 billion.

It seems Tesla’s strengths are weakening.

Tesla Weaknesses

Tesla’s weaknesses are also strengthening.

The biggest weakness is its product line, which needs a complete refresh. The cars all look like Toyota’s Camry. The Camry will soon be hybrid-only, a power system American buyers prefer because the gas engine eliminates range anxiety.

This is where the market battle will be fought, with Toyota believing full electrics will never get more than 30% of the global market, due to lagging infrastructure.

Ford and General Motors (NYSE:GM) agree with Toyota. Today’s batteries are too heavy for the huge pick-ups on which American companies make their money. This is a key part of my TSLA stock analysis.

Toyota is the big threat, which is why its stock is up 59% over the last year, against a 4% loss for Tesla. Tesla’s supply chain is all-electric. The value of Toyota’s $198 billion in property, against Tesla’s $60 billion, might be discounted. By how much?

Then there’s the Tesla Cybertruck, which looks like a giant failure. Meanwhile, Toyota is rolling out an electric version of its Tacoma truck, Ford and GM are building hybrids, and sales of the Rivian (NASDAQ:RIVN) electric are slowing.

The Bottom Line

I can see why Tesla is still the most valuable American car company. But 13 times more? I can also see why Tesla would be worth what Toyota is. But twice as much?

The difference between Toyota’s valuation and Tesla’s is Elon Musk. Musk isn’t worth $330 billion to me.

Toyota will be facing the same competitors two years from now that it’s facing today. Tesla, with its all-electric line-up, will also be facing BYD (OTCMKTS:BYDDF) and a host of other Chinese names.

The name of the EV game in 2025 will be producing a $25,000 car. That’s a price a middle-income family can afford. That’s what I paid for my current car. Toyota meets it, with its hybrids. BYD will meet it, with electrics.

Tesla won’t meet it. Sell it. This concludes my TSLA stock analysis.

As of this writing, Dana Blankenhorn had a LONG position in AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his free Substack newsletter.

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