UBS douses cold water on Tesla: Core automotive business accounts for only 12% of market value, the remaining 1 trillion market value is all "stars and the sea"
UBS stated that the phenomenon of "the market value proportion of the automotive business falling below the average level" has only occurred twice in the past four years, resulting in corrections of over 30% and 70% in Tesla's stock price, respectively. Furthermore, Tesla's current expected price-to-earnings ratio has reached 100 times, far exceeding the average level of the past two years, and investors need to have a strong sense of conviction to continue increasing their holdings in the stock
After the U.S. election day, Tesla's stock price has risen by about 40%, with the company's market value reaching as high as $1.1 trillion.
UBS analysts Joseph Spak, Alejandro Nuno, and Zachary Walljaspe warned in a research report published on November 25 that in Tesla's recent stock price increase, sentiment-driven factors outweigh fundamental-driven factors, and investors need to be cautious.
UBS believes that although Tesla is transforming itself into an AI company, the automotive business remains the company's most important source of profit. Currently, the proportion of this business in the company's total market value has fallen below the recent average level, which is likely to trigger a "downward channel" for the stock price.
The higher you stand, the harder you fall?
The report states that the recent significant rise in Tesla's stock price is mainly attributed to the market's optimistic expectations regarding policy changes after Trump takes office as U.S. President, driven more by sentiment than by positive fundamentals.
From a valuation perspective, the market's positioning of Tesla has shifted from an electric vehicle company to an AI company:
In our framework, the per-share value of Tesla's automotive and energy businesses is approximately $52, while the valuation of Tesla's other businesses (AI, robotaxi, and Optimus, etc.) has reached $1 trillion at the current stock price.
This means that Tesla is viewed as a participant in the artificial intelligence field rather than a traditional electric vehicle manufacturer.
The report states that currently, Tesla's automotive business accounts for only 12% of the total market value, having dipped as low as 10%.
UBS also noted that whenever the market value proportion of the core automotive business reaches the recent average level (about 17%), the stock price often enters a "downward channel." This has only occurred twice in the past four years, resulting in over 30% and 70% corrections in Tesla's stock price, respectively.
As Tesla's valuation remains high, whether the automotive business can deliver expected profits for the company remains uncertain.
The report states that since 2022, Tesla's stock price has fluctuated between a forward 12-month price-to-earnings ratio of 20-60 times, while the current stock price corresponds to a forward price-to-earnings ratio that has exceeded 60 times, reaching over 100 times.
UBS indicates that if investors want to continue increasing their holdings in Tesla at the current price level, they must have an extraordinary level of conviction. For example, they must believe that Tesla can achieve a delivery target of 15.5 million vehicles by 2030 (current market expectation is 4.8 million) and a storage deployment target of 780 GWh (current market expectation is 139 GWh)