Tesla Dips Into Year-End - What’s Next?

It wouldn’t be like Tesla (NASDAQ:TSLA) to keep their investors guessing, would it?

After rallying more than 100% from July through the start of November, the brakes were firmly applied when CEO Elon Musk announced his intention to start unloading huge portions of his stock holdings to meet his tax obligations. Shares of the electric vehicle (EV) titan are down close to 30% in less than eight weeks and are in danger of breaking down below a key support level.

But it looks like Musk’s selling spree might be starting to wind down. Earlier this week, he indicated that he had sold stock that should roughly make his total Tesla share sale 10% of the starting position when he publicly announced his intention. All in, he’ll be paying more than $11 billion in taxes this year. Shares of Tesla were up more than 3% in Wednesday’s pre-market session, buoyed in part no doubt by the overall bounce in equities as seen in the 2% jump in the S&P 500 index on Tuesday.

Bulls versus Bears

For those of us on the sidelines and thinking about getting involved, there’s a lot to chew on. For example, the team over at Guggenheim is urging caution in the EV space going into 2022. Earlier this week, analyst Ali Faghri noted that:

“in the near term, however, we believe EV adoption may fall short of industry forecasts, particularly in the US due to a less onerous regulatory backdrop and limited product launches in key market segments. We also see insufficient domestic charging infrastructure and battery capacity as near-term bottlenecks.”

Guggenheim’s Neutral rating on Tesla stock and their $924 price target suggests shares are fairly valued at current levels.

But earlier this month, New Street Research came out with a bull case that sees the stock moving significantly higher thanks to some key catalysts in the near term. Analyst Pierre Ferragu and the team gave the stock a $1,580 price target, which suggests there’s an upside of close to 70% to be had from where shares closed on Tuesday. They wrote:

"Tesla is seen ending this year with an annualized production run-rate of well above 1M units and being likely to deliver a strong Q4 earnings beat. Production out of Berlin and Texas is anticipated to ramp during the year to help the automaker hit 1.5M total deliveries vs. 1.4M consensus, and margins are seen cracking the 30% level by the end of the year, despite the ramp of the two factories. Further manufacturing efficiency improvements could help in that regard.”

Strong Upside

This bullishness echoes that from Loop Ventures earlier this quarter, which sees Tesla achieving a $2.5 trillion market cap in the year’s head, a lofty call considering that the company currently commands a market cap around the $1 trillion mark. Driving this growth will be Tesla’s revenue jumping from $70B to $400B over the next five years. On that basis, and if an “Apple-like multiple” of 6.5 times sales is applied, you get a $2,500 stock price for Tesla. To get there, they’ll need to stay ahead of some of their closest competitors, who are finally starting to hit their stride after years of what felt like inaction.

Ford (NYSE:F), for example, has emerged as probably the top competitor for Tesla to be wary of as they’re already producing and selling electric vehicles, compared to some of the headline-grabbing, but revenue lacking, names also in the space. The 350% rally in Ford shares since April of last year is a testament to what Wall Street thinks of their progress into the EV space, and crucially for Tesla, their shares are actually higher than where they were in early November.

It has to be said, though, that Tesla still has more going for it than against it right now and that, on the whole, its shares are more likely to rally than fall in the medium to long term. In addition to the bull voices mentioned above, the likes of Goldman Sachs and Morgan Stanley are in the bull camp and have previously shared price targets in the four-figure range.

TSLA Daily Chart.

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