Tesla’s “Ludicrous Mode” Rally Raises Questions

Tesla’s “Ludicrous Mode” Rally Raises Questions

about 4 years ago2 mins

Mentioned in story

Shares of Tesla, the electric car maker founded by Elon Musk, are heading for the moon – despite no obvious driver. So what’s going on? Has someone accidentally engaged the autopilot?

What does this mean?

There’s no doubt Tesla’s stock is on a tear: it’s more than doubled year to date, breaching $900 and sending the company’s valuation to $167 billion. That makes Tesla more than four times more valuable than Ford, even though it delivered just 367,000 vehicles to Ford’s 2.4 million in 2019.

Tesla engages Ludicrous Mode (Source: Koyfin)
Tesla engages Ludicrous Mode (Source: Koyfin)

Wall Street analysts have been ramping up price estimates on Tesla as its stock has surged, but they’re still almost 50% below the current price.

Catch me if you can (Source: Koyfin)
Catch me if you can (Source: Koyfin)

What’s the bull case?

There’s been plenty of good news for Tesla in the past week, from better-than-estimated fourth-quarter results to a joint venture with Panasonic turning a profit for the first time.

And that good run of form continued on Friday, when little-known money manager Ark Invest attracted attention with a report that predicts Tesla’s stock will climb almost ten times over the next five years. Its rationale: Tesla’s potential to cut production costs and nail autonomous driving 🤖

Tesla is used to hype. In many ways, the recent rally has merely brought its valuation back to “normal” compared to predicted revenue. (We’d usually compare a stock price to profit, but Tesla’s never made a full-year profit in its 17-year history).

Share price compared to next year’s estimated sales (Source:Koyfin)
Share price compared to next year’s estimated sales (Source:Koyfin)

And what are the bears saying?

Few doubt that we’ll be driving more electric cars in future: after all, they account for just 2% of the global fleet at present. But with everyone from BMW to Nissan planning new electric models, it remains to be seen if Tesla will win out.

As Morgan Stanley pointed out in a report on Tuesday, “there were four different auto company Super Bowl ads featuring electric vehicles.” That much popularity might be why it held fast to both its “underweight” (a.k.a. sell) rating and $360 price target on the stock.

Tesla’s surge is certainly igniting vigorous debate in Finimize’s premium chats. We like South African Finimizer Matt Stephanou’s analysis that Tesla has managed to hit the fabled “product-zeitgeist fit”.

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