Tesla, Inc. (NASDAQ:TSLA)
In my opinion, the stock of Tesla, Inc. (NASDAQ:TSLA) is currently rated as a Hold.
A July 6, 2022 story discussed Tesla’s lower-than-expected Q2 2022 deliveries. This update focuses on Tesla, Inc. (NASDAQ:TSLA) recent stock split and price target adjustments.
After target price adjustments and the stock split, I still maintain a Hold rating on Tesla shares. Initial research reveals the stock split hasn’t boosted Tesla’s trading liquidity, and the anticipated upside for TSLA’s shares isn’t very enticing.
Key TSLA Metrics
Tesla, Inc. (NASDAQ:TSLA) stock split occurred on August 25, 2022. TSLA stated on August 5, 2022, that the Board authorized the split to increase employee and investor equity ownership.
Key data give an early, if inaccurate, indication of Tesla’s stock split’s performance.
Tesla, Inc. (NASDAQ:TSLA) post-split trading liquidity is a significant statistic.
Tesla’s average daily trading volume (adjusted for split) has reduced by 19%, from 63.3 million before the stock split to 51.4 million. The stock split didn’t increase Tesla, Inc. (NASDAQ:TSLA) trading liquidity.
The comparative period is too short of saying the stock split didn’t enhance Tesla’s trading volumes. Pre-holiday activity tends to be lighter for the entire market; thus, Labor Day may have affected trade volume.
The post-split share price is another crucial measure.
Seeking Alpha data shows Tesla’s shares lagged the market one week post-split. Tesla, Inc. (NASDAQ:TSLA) stock price fell -9.1% between August 24 and September 2, 2022, while the S&P 500 fell -by 5.2%.
Like trade volume fluctuations, it’s impossible to say if Tesla, Inc. stock split was good. Tesla’s share price may be impacted by factors unrelated to the split in such a short time.
Amazon (AMZN) and Alphabet (GOOG) (GOOGL) divided their equities in June and July 2022 and saw their share prices rise afterward. In a few months, Tesla’s trading volumes and share price performance will help analyze the stock split’s impact.
I discuss TSLA’s current consensus price objective and movements over the previous year in the following two parts.
What’s Tesla’s Price Target?
S&P Capital IQ puts Tesla’s mean target price at $306.17. This means sell-side analysts believe Tesla, Inc. shares may climb +13% from its last trading price of $270.21 on September 2, 2022.
Tesla, Inc.’s (NASDAQ:TSLA) upside potential of +13% based on the sell-average side’s price target doesn’t warrant a Buy rating. Investors generally seek a 15% return to buy a company’s shares for capital appreciation.
Wall Street analysts’ investment ratings reflect their divided views on Tesla and its low target price. Only 21 out of 37 (57%) sell-side analysts cover Tesla’s stock.
Next, I examine Tesla, Inc.’s (NASDAQ:TSLA) target price variations over the previous year.
What’s Tesla’s 12-Month Price Target?
In the previous year, the sell-average side’s target price for Tesla, Inc. rose from below $250 to above $300.
TSLA’s changing consensus price target reflects how the market views the company. The downward adjustments in Tesla’s target price began in late April 2022, coinciding with two important headwinds in recent months.
First, China’s COVID-19 lockdowns peaked in 2022. In my early-July Tesla report, I said, “I am concerned about TSLA’s manufacturing and sales dependency on China.” China’s zero-COVID posture is a significant concern for Tesla.
The Fed announced rate rises in March, May, June, and July 2022. Rising rates have hurt growth equities like Tesla, as seen by the stock’s de-rating. According to S&P Capital IQ’s historical valuation data, TSLA’s Enterprise Value-to-Revenue multiple has shrunk from 14.26 times on April 4, 2022, to 7.89 times on September 2, 2022. Investors don’t look prepared to pay a significant valuation premium for growth companies like Tesla unless the Fed’s rate hikes cease.
Long-Term Tesla Investment?
Tesla’s long-term investment potential isn’t evident.
Tesla, Inc. has a sourcing advantage over rivals. Batteries limit future output and market share growth. According to a Piper Sandler analysis titled “Tesla’s Competition: A Framework for Ranking 20th-Century Auto Brands,” issued on July 13, 2022, TSLA is the only automaker with 100% of “(battery) cell demand (2030) fulfilled by in-house or JV cells.” Piper Sandler’s study shows no other rival comes close to Tesla, with Volvo (OTCPK:VOLAF) (OTCPK:VOLVF) a distant second with 71% 2030 battery cell demand coverage.
Tesla may not be the most popular EV brand in the future. TSLA may have lost some of its distinct brand appeals as it has grown. Morgan Stanley (MS) asks its summer interns which car brand they prefer yearly. TSLA’s “desirability as a proportion of overall intern choice decreased to 19% (in 2022) vs. 30% or higher in each of the preceding three years,” according to a 2022 MS report headlined “4th Annual Intern Survey: Tesla Still Tops, But Less Cool Now.” This may be a hint that Tesla’s brand perception has shifted.
What’s the verdict on TSLA?
Hold Tesla, Inc. (NASDAQ:TSLA). Tesla’s values may have already been de-rated based on future Enterprise Value-to-Revenue, but China might represent near-term downside risks. Long-term, I’m optimistic about Tesla’s competitive edge in sourcing but less sure about its branding strength.
Featured Image- Megapixl @Doomu
Author Shariq Khan 
