• Investing app Pearler said Tesla remains one of its most popular international stocks
  • US Morningstar analyst Seth Goldstein thinks the market has become too pessimistic about the electric vehicle maker
  • Goldstein says Tesla management’s lack of financial guidance hasn’t helped investor sentiment

US electric car maker Tesla (Nasdaq: TSLA) is one of Australia’s most popular international stocks.

Investment app Pearler co-founder Nick Nicolaides said about 90% of his investors would hold Tesla through a diversified ETF, but it’s also his most popular standalone stock.

He said Pearler’s investors favored global ETFs (over 80%) and Tesla was in five of its top 10 holdings (out of all ETFs).

“We also offer direct US stocks on the Pearler platform and the Telsa factor is real, even for our younger investors, who are into passive investing,” he said.

“This is the #1 direct equity position since our launch and typically over 25% over our #2 position, which is Apple.”

But while Tesla may be popular, it’s also very polarizing, with those who believe in its potential for future growth and others who aren’t so sure.

Thrown into the equation is Tesla’s top billionaire CEO Elon Musk, who has been hotly debated for years but seemed to take it to another level in 2022 with a long saga to buy Twitter.

Investors seemed worried Musk had taken on too much with Twitter, now leading the social media giant along with Tesla, SpaceX and other companies.

Additionally, he sold large amounts of his Tesla holdings to fund the $44 million purchase of Twitter, which by all reports is facing mounting financial difficulties.

To continue Musk’s not-so-great start to 2023, he was faced in US court to testify in a class action lawsuit brought by Tesla investors alleging he misled them with a five-year-old tweet.

And like Stockhead Josh Chiat reported that he “got the buzz for a borderline absurd comment” regarding copper and lithium using his megaphone Twitter.

Tesla’s stock price itself has been on a frantic run and after a strong run in 2020 and 2021 had what can only be described as a disappointing 2022 for investors.

Tesla shares started 2022 at ~US$400/share, but ended the year at ~US$120/share, which equates to about a 70% decline. Tesla shares hit a high of US$410 in November 2021.

But while the stock price tumbled last year, it has tended to reward investors over the years since its first IPO. Tesla’s IPO took place on June 29, 2010 and was priced at $17/share.

Economic headwinds, including inflation, have not helped the automaker. Growth in new vehicle deliveries slowed to 40% last year, from 87% the year before and below the 50% annual rate that Musk had set as a benchmark.

Source: Morning Star

Pessimistic market on Tesla

So, to get some insight into Tesla, we got up early to speak with Seth Goldstein, Morningstar’s U.S. equity strategist.

He said that with a high-growth stock like Tesla, the market has to try to extrapolate what the long-term growth will be and whether it’s approaching 50% per year – which is in line with the annual delivery growth targets of management – ​​and are revenues growing accordingly.

“Or is Tesla going into a lower growth mode, which probably means 10-20% growth per year?” he said.

Goldstein said that when growth was above the 50% management target set, the price shot up, but when it moved to lower growth, the market got too bearish and assumed a rate. much weaker long-term growth.

“We thought the market was being too optimistic in thinking that 50% per year was the correct long-term growth rate, but now we think the market has gotten a little too pessimistic on the name,” he said. .

“Just as we viewed it as massively overvalued a year ago at 18 months, we now view it as undervalued. Even despite rallying around 40% from the 52-week low, we believe that the market is still a bit too pessimistic about Tesla’s long-term growth rate.”

The perfect place

Morningstar’s fair value estimate for Tesla is currently US$220/share, which Goldstein says assumes a five-year revenue growth rate of about 28% and 20% revenue growth over a period of 10 years.

He said Morningstar’s model is largely driven by Telsa’s automotive business, growing from 1.3 million vehicle deliveries last year to more than 5 million by the end of the decade.

Separating the man from the business

While Musk is largely the face of Tesla, it was founded by Martin Eberhard and Marc Tarpenning in 2003. Musk became its largest shareholder in 2004 and has been its CEO since 2008.

So what about Tesla away from its controversial CEO? How does it stand up?

“He’s still very much connected to Elon Musk and I think a lot of the selloff is down to Musk and his involvement with Twitter, leaving the market worried he might lose focus on Tesla and the company’s goals. might not be achieved as a result,” Goldstein said.

“There’s also the risk that Musk will have to sell more shares to help Twitter get permanent funding, because much of the debt he took on to shut down Twitter is unlikely to be a sustainable source of funding at all. long term.”

However, Goldstein said Tesla had shown it was a large conglomerate that could sell its vehicles.

“The company appears to be very well organized and all of the division heads can certainly manage the company if Musk were to step down or move to something like a general manager on the board,” he said.

“If that happens, I think Tesla will be fine because they’re opening new factories cutting production costs while increasing production,” he said.

Goldstein said Tesla is renewing demand for its vehicles, its self-driving software is advancing, the insurance industry continues to grow, more chargers are being built while interest in electric vehicles and energy renewables was also increasing.

“When you look at all the long-term goals that Musk has set for Tesla, the company continues to move forward,” he said.

“I don’t think he needs to be as involved day-to-day as he may have once said, like in 2018 when the Model 3 launched.”

Driving growth in 2023 and beyond

Goldstein said he was confident Tesla would continue to grow in 2023 and beyond, even under tough economic conditions.

“In 2023, even against the backdrop of a global economic slowdown and potential recession, I still expect Tesla to reach over 1.6 million deliveries, which would represent an average growth rate of 20% of a year over year,” Goldstein said.

“They will continue to make progress on fully self-driving, expand insurance to more states, deploy more regenerative and energy storage capabilities, so I expect Tesla to still have a 2023 solid and I expect revenue growth of around 22%.”

He said the lack of financial guidance from Tesla management hasn’t helped investor sentiment.

“Tesla has said they want to increase vehicle delivery by an average of 50% per year over a period of years, but unfortunately that’s all management has said. And they keep saying that, but don’t not say it’s 50% per year from 2020 or 2021, or does it reset every year even if they go up more than 50%,” he said.

“They don’t give any other financial guidance, so when management doesn’t want to give so much short-term guidance on how they view the business or how they forecast it, it leaves the market trying to interpret where management is headed.

“I think the market assumes 50% every year and revenue and profit will increase accordingly. Then, when that didn’t happen, the market changed its growth expectations and without guidance, there seemed to be a much bigger reset in growth expectations than if management had provided more clarity.

So, does Goldstein think Tesla investors are likely to see a US$400 stock price comeback anytime soon?

“We still see the current price bullish, but if anyone is expecting the $400 stock range, which was the 52-week high, then that’s a bit bullish and the market won’t. maybe not so many short-term optimistic assumptions,” he said.

The author owned shares of Tesla at the time of writing this article.

Any views, information or opinions expressed in the interviews for this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse, or take responsibility for the financial product advice contained in this article.

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