Analyst Says Tesla Stock Overvalued, Could Dip Over 50%

Tesla stock is inflated and could lose more than half of its value, according to Citi analyst Itay Michaeli.

In a note to client’s published by Yahoo Finance, Michaeli reiterated a sell rating on Tesla’s stock on with a $424 price target. Tesla stock traded around at $923 per share on Wednesday.

The basis for Michaeli’s bold call involves skepticism related to Tesla’s autonomous driving technology and the view that Tesla’s stock — which is trading on a lofty forward P/E ratio of 76 times — is not factoring in a deepening economic slowdown.

“We think the current valuation remains challenging considering that the handful of other companies that previously achieved Tesla’s current market cap did so generating ~$100 billion of gross profit (on average) vs. Tesla’s second half 2022 estimated annualized of ~$30 billion (and $20 billion in the first half,” Michaeli wrote. “And, in the current macro situation, we need to be mindful that Tesla is adding sizable Model Y capacity in what are now price-points (>$60k US) where the US market-size is inherently smaller and where other EVs are also ramping.”

Michaeli joined JP Morgan analyst Ryan Brinkman in reiterating a sell equivalent rating on Tesla’s stock post second quarter earnings.

Tesla, meanwhile, has made a strong argument to justify the current valuation on its stock — and maybe even a richer one.

Second quarter sales rose 43% from a year ago to $14.6 billion. Operating profits surged 88% from a year ago to $2.5 billion.

“In a nutshell, the [second] quarter was better than feared with healthy guidance for 2H by Musk & Co. that look achievable with no margin for error,” Webush Tesla bull Dan Ives said in a note.

The company could also see an earnings tailwind later this year from cooling commodities prices if CEO Elon Musk’s prediction comes true.

“If I were to guess — and I would take this with a grain of salt — I think inflation will decline towards the end of this year,” Musk told analysts on an earnings call. “We are certainly seeing prices of commodities trending lower.”