Risk/Reward Rating: Negative
Tesla is by far the most extremely valued U.S. mega-cap stock in today’s market. The extraordinary valuation for what amounts to an auto OEM has no historical precedent. To make matters worse, the extreme valuation level is based on low quality earnings which are generated by selling government EV tax credits at 100% profit margins to other auto manufacturers.
These tax credit sales, with 100% profit margins, must be backed out of long-term valuation models as the Tesla business does not generate them. They are a short-term gift via government subsidies which will dissipate as all other auto manufacturers are rapidly transitioning to electric vehicle (EV) production of their own.
Valuation: 152x 2021 earnings estimates and 102x 2022 estimates. These estimates include the tax credit sales and the planned plant openings in Austin, Texas and in Germany. For comparison purposes, Ford and General Motors are currently valued at 8x 2022 earnings estimates.
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