Tesla (NASDAQ:TSLA) stock is up another 21% in the past five days. The main catalyst for the move higher is a recently announced stock split planned for Aug. 31. Stock splits, of course, create no actual value for a company whatsoever. But when it comes to TSLA stock, reality hasn’t mattered for a long time. What actually matters is the story Tesla tells its investors and the stories they tell each other.
Wall Street analysts are finally having to tear themselves away from facts and numbers and admit that TSLA stock is valued instead on hopes and dreams. Wedbush and Bank of America are the latest to boost price targets for Tesla, which I believe has become the most dangerous stock in the market.
Analysts Adjust to TSLA Stock Reality
On Monday, Wedbush analyst Daniel Ives raised his price target for TSLA from $1,800 to $1,900. Ives was an early Tesla bull and has consistently been a believer in the Tesla story. To justify his new target, Ives skips ahead a few chapters in the Tesla storybook.
“We believe that the China growth story is worth at least $400 per share in a bull case to Tesla as this EV penetration is set to ramp significantly over the next 12 to 18 months, along with major battery innovations coming out of Giga 3 (million mile battery remains an elusive goal now in the grasp in our opinion),” Ives says.
In my opinion, that analysis boils down to three key words: “believe,” ”China,” and “story.” Ives believes the China story for Tesla.
Ives also says Tesla will soon be a major third-party battery supplier for other auto companies.
“Looking ahead, we believe Musk & Co. are slated to announce a number of new potential ‘game changing’ battery developments at its highly anticipated Battery Day on September 22,” Ives said.
Again, he is anticipating Tesla will “announce” game-changing battery technology. I have no doubt Ives is right. If there’s one thing Tesla is good at, it’s announcing things. For example, Tesla announced the roadster back in 2017, and it’s still nowhere to be seen. But once again, this analysis is pure speculation about what Tesla will announce and, more importantly, what it will actually be able to deliver.
The caveat to Ives’ analysis is his stock rating, which is “neutral.” I’ve been on the sidelines when it comes to Tesla for years. TSLA stock is a story stock that is caught in the middle of an EV bubble. Anyone who is long or short the stock at these prices is nuts, in my opinion. That’s why I think “dangerous” is the best word to use to describe the stock.
Wall Street analysts like Ives believe in the story, but they aren’t recommending the stock. Bank of America analyst John Murphy recently upgraded Tesla. He upgraded it to, you guessed it, “neutral.”
Murphy was a long-time Tesla bear and a skeptic of the story. But even Tesla bears are being forced to admit that the story itself holds value if enough people believe it.
“While we remain skeptical that TSLA will be the dominant EV automaker in the long-run, if a big global footprint can be built with no-cost capital, the ‘growth’ story would carry the day for the stock,” Murphy said in his upgrade note.
In other words, Murphy doesn’t seem to believe the Tesla story. But he says the fact that so many investors believe it is creating a self-fulfilling prophecy. So at the end of the day, he too arrived at a “neutral.”
I think it’s extremely telling that you have a long-term Tesla bull like Ives and a long-term Tesla bear like Murphy both reaching the same conclusion I did years ago. Tesla stock is simply untouchable.
Tesla Is Dangerous
TSLA stock is too dangerous to buy or short.
In fact, David Trainer, CEO of investment research firm New Constructs, says Tesla is the “most dangerous stock of 2020.”
“We have not found an estimate for Tesla sales that is not well below the incumbents expected EV sales of ~3.1 million EVs in 2025,” Trainer says.
He is projecting Tesla shares have more than 80% downside once the market realizes the TSLA stock story and valuation are absurd.
In a nutshell, Tesla is at the epicenter of an EV stock bubble. There’s no way of knowing how inflated that bubble will become or when it will burst. Bullish and bearish Wall Street analysts are throwing in the towel and flocking to the “neutral” sidelines. It’s really the only appropriate conclusion. Just stay away from TSLA stock.
Wayne Duggan has been a U.S. News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. Mr. Duggan is the author of the book Beating Wall Street With Common Sense, which focuses on investing psychology and practical strategies to outperform the stock market. As of this writing, Wayne Duggan was long GM.