What's Happening?
Tesla is preparing for its Q3 earnings report, with Barclays analyst Dan Levy highlighting two contrasting narratives influencing the company's stock performance. On one hand, Tesla's revenue primarily comes from car sales, but its valuation is more akin
to a tech company due to its focus on AI, autonomous driving, and robotics. Levy notes that Tesla's stock has surged over 30% since early September, driven by optimism around Elon Musk's re-engagement, including a proposed compensation package and a significant share purchase. However, the fundamental backdrop appears weaker, with Q3 deliveries expected to be peak volumes for some time. The expiration of the $7,500 EV tax credit in the U.S. has accelerated purchases, contributing to strong Q3 fundamentals. Despite this, Levy believes the stock gains are more influenced by the broader AV/AI narrative rather than near-term fundamentals.
Why It's Important?
The dual narrative surrounding Tesla highlights the tension between its automotive business and its ambitions in AI and autonomous driving. This distinction is crucial for investors as it affects the company's valuation and stock performance. The focus on AI and autonomous driving presents significant growth opportunities, but the commercialization timeframe remains uncertain. The automotive business is essential for financing these ambitions, particularly the cash-intensive process of scaling the robotaxi platform. Levy's analysis suggests that while fundamentals may not currently impact Tesla's stock, they will eventually regain importance. Investors should be aware of the potential for short-term stock fluctuations based on Q3 results and the broader growth narrative.
What's Next?
Levy anticipates that any mention of weaker near- or mid-term fundamentals beyond Q3 could negatively impact Tesla's stock. However, he suggests that any weakness might be short-lived, with potential excitement building towards the Nov 6 AGM, which is expected to reinforce Tesla's future growth narrative. Levy remains neutral, recommending an Equal-Weight rating and raising his price target from $275 to $350, although this is still below the current share price. The general consensus among analysts is a Hold rating, with mixed opinions on Tesla's stock performance over the next 12 months.
Beyond the Headlines
The broader implications of Tesla's dual narrative involve ethical and cultural dimensions related to AI and autonomous driving. As Tesla continues to pursue advancements in these areas, questions about safety, regulation, and societal impact will become increasingly relevant. The company's ambitious goals, such as the 'Mars-shot' milestones, require significant breakthroughs, which could reshape the automotive and tech industries. Investors and stakeholders should consider these long-term shifts and their potential impact on Tesla's business model and valuation.
