Source | Laser Finance Author | Ouyang Feng
On August 11th, Tesla announced that in order to enable more investors to buy its shares, it will split the company’s common stock at a ratio of 1:5 in the form of dividends . Once the news was announced, Tesla's stock price soared by more than 60%, reaching a high of $2,200 at the close of trading on August 28.
On August 31, on the first trading day after Tesla split the stock at 1:5, the stock price rose sharply by 12.57% to close at $498.32. At the same time, Tesla's market value reached 464.3 billion U.S. dollars, surpassing Visa to become the seventh-ranked company in the US stock market , second only to the top technology giants such as Apple, Amazon and Microsoft.
That day, Tesla CEO Elon Musk’s worth also increased: he surpassed Zuckerberg with a net worth of $115 billion and ranked third in the Bloomberg Billionaires Index.
However, within a few trading days after the stock split, Tesla's stock price began to decline, and it plunged 21% on September 8. The automaker, which is positioned as a technology stock, is once again caught in a whirlpool of valuation disputes.
01
Technology enterprise valuation logic
Since 2020, Tesla's stock price has risen nearly 500%. Since September last year, it has risen by almost 1000%. In contrast, the stock price of Toyota Motor, once the world's No. 1 car company by market value, is basically standing still.
In terms of sales, revenue and other data that reflect the company's fundamentals, Tesla and Toyota have a huge gap . In the second quarter of 2020, Toyota’s global sales were 1.848 million vehicles, revenue reached 4.6 trillion yen (approximately US$43.26 billion), and net profit margin was 3.45%; Tesla’s delivery volume was 90,650 vehicles (only Toyota 5%), revenue of US$6.036 billion (only 14% of Toyota's), and net profit margin of 1.72%.
Tesla clearly "deviated" from traditional valuation metrics. As of September 3, the company's price-earnings ratio has exceeded 1,000 times, while Toyota's price-earnings ratio is only 12.8 times . As for technology companies, Amazon has a P/E ratio of 128.6 times and Apple's 37.4 times, which is far below Tesla's.
Faced with this "unusual" rise, Wall Street analysts can only follow its pace and constantly adjust Tesla's estimated price. According to FactSet statistics, at the end of March, the average target price given by analysts was just over $100, and in September this figure was raised to $259.75. However, compared with the actual stock trend of Tesla, analysts' estimates appear to be "quite restrained", and the gap between the two has nearly doubled.
Short sellers who believe that Tesla's value is severely overvalued have paid the price for this , and they have been forced to buy back shares to follow its rapid rise. According to data from the financial analysis company S3 Partners, since August, Tesla's short investment losses have reached about 7 billion U.S. dollars, and a cumulative loss of more than 20 billion U.S. dollars since 2020.
For now, the bulls have temporarily won, and the skyrocketing stock price has given them huge returns . In the eyes of these supporters, Tesla is playing a role in promoting and leading the trend of intelligent and electrified cars. Jefferies analyst Philippe Houchois believes that the so-called misjudgment of valuation lies with traditional automakers, not Tesla. Before traditional automakers have considerable electric vehicle business and divest negative assets and debts, the gap between them and Tesla's market value will be further widened.
Individual investors are an important force to bullish Tesla. The car manufacturer from Silicon Valley is regarded by them as a growth technology stock, and has long been one of the most popular stocks on retail trading platforms such as Robinhood. On the first day after the completion of Tesla's stock split, multiple trading platforms such as Robinhood and TD Ameritrade also experienced downtime due to a surge in trading volume.
According to Tiger Securities data, among Tesla's shareholders, institutional investors account for 52.96% and individual investors account for 20.18%. In comparison, individual investors in Toyota, GM, and Honda hold less than 1% of the shares.
02
Technology boosts capital confidence
Unique technological advantages and business models have become reasons why investors are optimistic about Tesla's long-term potential.
According to the calculation results of the Evergrande Research Institute, Tesla has maintained more than 10% of its R&D investment intensity over the years, far exceeding the average level of 5% of traditional car companies . The accumulated investment over the years has gradually built up barriers to advantage.
In terms of three power technologies, Tesla and Panasonic jointly produced the "2170" lithium battery. Compared with the previous generation battery developed by both parties, its energy density has increased by 20%, and the cost has been reduced by 9% simultaneously. Guoyuan Securities quoted Bloomberg New Energy Finance data to show that in the long run, Tesla's battery pack costs have obvious advantages over the industry average . In 2019, Tesla acquired Maxwell, a provider of supercapacitor and dry battery electrode technology, to deploy cutting-edge battery technology. Public information shows that dry battery electrodes have the characteristics of long life, high energy density and low cost.
In the field of intelligence, Tesla gave the car's auto-assisted driving function (ie Autopilot) through an OTA software update in 2014, and further launched a paid subscription FSD autonomous driving system in 2019. Except for sensors purchased from outside, core technologies such as chips (HW series), algorithms and OTA are all independently developed by the company .
Tesla also adopts a crowdsourcing model, using Autopilot-equipped vehicles on the road to recover a large number of real-time road conditions and driving data for training of autonomous driving algorithms. Even if the driver has not enabled Autopilot, the sensor can still collect data and send it back to the Tesla backstage via wireless transmission. The efficiency of this model far exceeds that of other autonomous driving companies that are still conducting small-scale road tests. Official information shows that the driving range of Tesla's Autopilot assisted driving function has exceeded 3 billion miles .
Tesla also changed the traditional distributed ECU architecture to form a centralized electronic and electrical architecture composed of three modules, which simplifies the number of ECUs and wiring harnesses in the vehicle while meeting the high computing power requirements of smart cars, and reduces costs.
Audi CEO Markus Duesmann admitted frankly that Tesla is two years ahead of Audi in the development of in-car software, autonomous driving functions and battery technology .
In addition, Li Xiang, founder and CEO of Ideal Motors, also pointed out that the stable charging experience provided by Tesla's self-built super charging stations to users is underestimated by most people in the industry . Globally, the number of Tesla overcharge stations has reached 1971, and there are over 17,000 operating charging piles.
Technical advantages and business models have been transformed into direct performance . EV Sales statistics show that in the first half of 2020, Tesla ranked first among global new energy car companies with a sales volume of 179,100 vehicles, with a market share of nearly 20% . In the pure electric market, its share has reached 28%.
Under the impact of the epidemic and the downturn in the auto market, Tesla's performance exceeded market expectations. In the second quarter of 2020, the company's adjusted profit before interest and tax increased by 111% year-on-year to US$1.209 billion, and its net profit was US$104 million, achieving profitability for four consecutive quarters. This makes Tesla qualified to enter the S&P 500 Index. By then, there will be more index funds and large investment institutions buying and holding shares of this company.
03
Polarization of stock split evaluation
In the face of positive market feedback, Tesla believes that splitting the stock can give more employees and investors the opportunity to buy and hold the company's stock .
Securities agency Wedbush analyst Dan Ives agreed with this. He believes that Tesla's stock split in the "super cycle" is a "wise move made at the right time", and more companies will follow this approach.
However, there are also views that this approach of "dividing the same big cake into more pieces" is not meaningful, and the value of the company and shareholders' equity will not change as a result .
In fact, the practice of splitting stocks is becoming less and less common. This is because the stock trading platform can provide the trading of fragmentary shares, so that retail investors do not have to buy whole shares, and have the opportunity to hold high-priced stocks . Reuters quoted S&P Dow Jones Index data as saying that in 2000, nearly 100 members of the S&P 500 were splitting their stocks. By 2020, only three members of the S&P 500 had announced the split plan.
From the announcement of the stock split to the completion of the stock split, Tesla's price rose sharply by 60%. Allan Roth, founder of financial advisory firm Wealth Logic, doesn't take it seriously. He said that the stock rise does not mean anything, because "in the long run, its stock price is still driven by the company's fundamentals, and the spin-off has nothing to do with long-term performance."
Sarat Sethi, a partner of Douglas C. Lane, a consulting firm, believes that the practice of a large number of retail investors entering the market to chase split shares is not conducive to the healthy development of the market.
Tesla chose to "strike while the iron is hot" and announced on September 1 that it would raise $5 billion in funds through the sale of new shares, making it the largest additional issuance in the company's 10 years of listing . At the same time, Baillie Gifford, Tesla's largest institutional shareholder, lowered its shareholding ratio from 6.32% to 4.25%, and stated in a statement that the move was only due to portfolio restrictions.
Two bad news superimposed on the US technology stock sell-off wave, causing Tesla's share price to fall by 18% between September 1st and 3rd. As of 7:49 on September 4th, the company's pre-market price was 384.44. The US dollar fell 5.54%.
In addition, Standard Dow Jones Indices announced that the new addition to the S&P 500 Index did not include Tesla. As a result, Tesla's stock price fell sharply by 21% on September 8 to close at $330.21, and its market value also shrank by $80 billion. , Which is equivalent to the combined market value of General Motors and Ford Motor.
The widespread controversy over Tesla's earnings stability and stock price rationality seems to have become the main reason for this company's failure to select the S&P 500.
04
Or will be the first car company
Voices questioning the reasonableness of Tesla's market value were once high.
According to the survey statistics of financial data service provider FactSet, among the 36 investment analysts surveyed, only 7 (19%) gave Tesla a “buy” rating, and 11 analysts (31%) ) Give a "sell" rating. The average target price given by analysts is $261.85, which is 47% lower than the closing price on September 1.
According to an analysis by Credit Suisse, momentum trading, short covering, and the prospect of being included in the S&P 500 index prompting passive purchases by investment institutions have caused Tesla's share price to rise and exceed the company's fundamentals .
Analysts believe that Tesla stock has obvious signs of a bubble. They pointed out that the reason why Tesla's stock price can rise is because investors are constantly chasing up the stock price because of fear of stepping out and the influx of momentum trading funds.
IG Group chief market analyst Chris Beauchamp said that Tesla’s stock price has deviated from the fundamentals, “substantial growth is accompanied by huge potential downside risks”, and the positive attitude of the market may “dissolve soon” .
Research firm Sanford C. Bernstein analyst Toni Sacconaghi believes that Tesla’s valuation is facing a series of risks, including that its new models may squeeze the sales of older models, and the overall increase in competition in the electric vehicle market will eat into this. Company’s market share.
Dangerous signals appear to appear in the European market. According to data from the consulting agency JATO, Tesla's registrations in this market in July 2020 fell 76% year-on-year to 1,050, in sharp contrast with the 131% increase in European electric vehicle registrations.
Felipe Munoz, an analyst at the agency, believes that the acceleration of local European brands to launch price-competitive electric vehicles is one of the reasons why their share has been weakened . More importantly, considering that the Tesla plant was shut down during the epidemic, the brand's capacity supply shortage has caused delays in delivery to Europe.
At present, the production capacity of Tesla's Shanghai super factory is still increasing, and the Chinese-made Model Y will be mass-produced next year. Plants in Berlin, Germany and Austin, USA are also under construction, and are scheduled to start production next year. Through the external financing method of issuing additional stocks, the automaker is able to expand its products and production capacity as planned .
John Murphy believes that the more the stock price of this car company soars, the lower the financing cost will be to raise funds, drive business growth, and return investors with higher stock prices in the future. This means that in this virtuous circle, Tesla can continue to obtain funds without spending almost no cost, promote capacity expansion and revenue growth, and consolidate its leading position in the electric vehicle industry.
Excluding the overall stock market factors, Tesla's fall in early September may only be a temporary correction. At the upcoming "Battery Day" event on September 22, the company may release more positive signals.
Dan Ives said that Tesla will announce a series of "changing industry rules" results on "Battery Day", including power batteries that can support electric vehicles to travel millions of miles. At that time, the competition between electric vehicles and fuel vehicles will enter a new stage. He also believes that the demand for electric vehicles in the Chinese market is accelerating, and Tesla is expected to succeed in market competition .