Sell Overvalued Tesla Stock as Elon Musk Hints at Long-term Trouble

• Despite the decline in Tesla (TSLA) stock, it is still trading at high valuations.
• The average price target of Wall Street analysts for Tesla’ stock is $867.41.
• Tesla is facing serious headwinds due to low utilization at its new plants and supply-chain disruptions.

TSLA stock - Sell Overvalued Tesla Stock as Elon Musk Hints at Long-term Trouble

Source: Vitaliy Karimov /

Tesla (NASDAQ:TSLA) investors have been on a wild ride these past few weeks. Like most high-growth stocks, TSLA has lost close to 40% of its value from all-time highs.

Relatively speaking, TSLA stock has done a decent job of holding its value despite being worth much less now than last year. Stocks of other electric vehicle (EV) companies, such as Lucid (NASDAQ:LCID) and Rivian (NASDAQ:RIVN), are down 50% to 60% from their peaks. TSLA stock performed even better than Ford (NYSE:F), which is down 52% from its peak.

Despite the decline, I wonder if TSLA shares are still overvalued at these levels.

Ticker Company Price
TSLA Tesla, Inc. $695.52

TSLA Stock Remains Overvalued

Investor confidence is relatively high on TSLA stock. The evidence of this can be seen in the stock’s trading multiples. In its latest earnings report for first-quarter (Q1) 2022, Tesla earned $2.86 diluted earnings per share (EPS). Annualizing this number gives the company a forecasted EPS of $11.44 and an implied price-to-earnings ratio of 64x. The company also has a price-to-sales ratio of 11.75x based on its trailing 12-month revenue of $62 billion.

Analysts continue to remain upbeat on TSLA stock. Tesla is a “moderate buy,” according to Tipranks. The company’s stock has an average 12-month price target of $867.41, which is 24.8% above its most recent price. The 30 Wall Street analysts surveyed gave a low forecast of $67 and a high forecast of $1,580.

Most recently, Wedbush analyst Dan Ives, a long-time bull, cut his Tesla price target. He maintained a “buy” rating and his price target, in my opinion, is still too high at $1,000 per share.

Tesla Could Be in Danger

These multiples are fine for a high-growth company. Undoubtedly, Tesla has been executing their plans well for the last few quarters. However, the firm is facing serious headwinds.

In news that should cause sleepless nights to many long-term Tesla bulls, Elon Musk raised the possibility of bankruptcy. The EV manufacturer could lose billions of dollars from its new plants, supply chain problems, and continued Covid-19 lockdowns in China.

In an interview, the Tesla chief executive officer mentioned “The past two years have been an absolute nightmare of supply chain interruptions, one thing after another. […] We’re not out of it yet. That’s overwhelmingly our concern is how do we keep the factories operating so we can pay people and not go bankrupt.”

The company is starting to take somewhat extreme measures to preserve cash. Tesla began laying off employees and rescinding job offers. Some full-time workers are also being transitioned to hourly rates. Musk mentioned that he aims to cut at least 10% of its workforce.

Investor Takeaway on TSLA Stock

TSLA shares could possibly head even lower given the headwinds faced by the company. Investors need to factor in that the current macro-situation could hamper Tesla’s ability to grow rapidly. Therefore, I believe that TSLA stock should not be trading at its current high valuations. I am taking a wait-and-see approach with TSLA stock.

On the date of publication, Joseph Nograles did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Joseph Nograles is a part-time freelance copywriter focused on the financial industry. He has worked in a wide variety of industries from tech to consulting with one of the “big four.” He has always enjoyed analyzing businesses and has been a CFA charterholder for nearly a decade now.


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