Following the recent surge in the stock price (partly due to a short squeeze), we feel that, the Tesla stock is somewhat ahead of itself.
The amount of cars Tesla needs to sell in order to justify its current valuation (PE of 91.2x 2021 EPS est. vs. 5.8x for US peers), or for that matter to move higher, is extremely high.
We believe that Tesla has a head start in electrification but it does not have a sustainable competitive advantage because ultimately electrification in itself is not a complicated technology that companies can profit from. The batteries and motors have become commoditised. There will be more competition in the high-end market with the likes of BMW, Daimler, Audi and others.
Investors also like Tesla for its ESG record. They are correct on the environmental score, but as regards governance, Telsa probably has one of the worst corporate governance records in the US.
Telsa is what could be called a concept stock. It is definitely a momentum- and narrative-driven stock, and the bulls are still hooked by the announcements of the China facility (which has a capacity of 150,000 units which could be expanded to 300,000), the Berlin factory (which could produce 250,000 to 300,000 cars) and of the pick-up truck introduction. However, we would recommend taking profits at this stage.