Tesla’s Stock Takes A Hit, But Analyst Sees Value in Non-Automotive Businesses
Tesla Inc. TSLA faced a turbulent week as investors reacted negatively to its Q2 earnings report and Elon Musk’s subsequent comments. Despite the stock slump, a prominent Wall Street analyst maintains a bullish stance, emphasizing the potential value of Tesla’s non-automotive divisions.
Key Takeaways:
- Tesla reported weaker-than-expected Q2 earnings, with the lowest profit margins in five years, amidst an intense electric vehicle price war and declining consumer demand.
- The company also pushed back the launch of its highly anticipated robotaxi to October or later due to design modifications.
- Despite these setbacks, Morgan Stanley analyst Adam Jonas believes investors are overlooking the inherent value of Tesla’s energy, AI, and robotics businesses.
- Jonas maintains his $310 price target for Tesla stock, arguing that these non-automotive divisions hold greater long-term potential than the traditional carmaking unit.
- Meanwhile, other analysts remain skeptical, highlighting concerns about Tesla’s lack of a clear strategy and its reliance on emission credit sales.
Beyond the Electric Vehicle
While the automotive industry is grappling with price pressure and slowing demand, Tesla’s future might be less about cars and more about energy, artificial intelligence, and robotics. This is the core argument presented by Morgan Stanley’s Adam Jonas, a vocal Tesla bull. Despite the company’s Q2 earnings disappointment, Jonas remains confident in Tesla’s overall trajectory, suggesting that the company’s diversification strategy holds significant long-term value.
Diversifying for Growth
Jonas emphasizes that Tesla’s non-automotive businesses, including its energy storage, AI, and robotics divisions, are rapidly developing and could contribute significantly to shareholder value.
“While negative developments in the global EV market could impact the stock in the near-term, investors should not overlook Tesla’s other plays, including recurring revenue from the Tesla fleet and areas like Energy Storage and Optimus,” Jonas stated in a recent note.
A Shift in Focus
Jonas believes that Tesla’s AI infrastructure assets are flourishing and deserve more attention. He points to the company’s record deployment of energy storage products in the second quarter, which saw approximately 9.4 gigawatt hours of deployment.
Jonas asserts that the potential of these sectors now eclipses the traditional car business: "Our thesis views Tesla as both an auto and an energy/AI/robotics company, with the core auto business valuation at $59/share, just ~19% of our $310 target.”
More Than Just EVs
Tesla CEO Elon Musk reiterated his commitment to AI technologies and their potential for profitability during the earnings call. He also foreshadowed a significant increase in capital spending this year, reaching approximately $10 billion. While Tesla’s earnings per share fell by 43% compared to the previous year, revenue climbed 3% to $25.5 billion, fueled by robust delivery numbers. However, this growth did not translate into improved profit margins, with Tesla’s gross margin dropping to 14.6%, its lowest in at least five years.
Despite this, Musk remains optimistic about Tesla’s future trajectory, asserting that full-year deliveries will be lower than last year but emphasizes the company’s potential beyond car production.
Skepticism and Concerns
While Jonas remains bullish, other analysts remain cautious. Gary Black, Managing Partner of The Future Fund LLC, criticized Tesla’s Q2 earnings, citing a lack of analytical rigor and strategic direction. He questioned the company’s market cap projections and called for a clearer strategy on margin stabilization, marketing, and the rollout of Full Self-Driving features.
Black, who has significantly reduced his Tesla stake, outlined three conditions that would encourage him to invest again:
- Stabilization and improvement of auto gross margins: Tesla needs to demonstrate a clear path to achieving this goal.
- Return to 25%+ volume growth: The launch of sub-$30K EVs could expand market share and drive growth.
- Significant improvement in Full Self-Driving efficacy: The technology needs to reach near-perfect performance (99.99%) to justify a higher price target.
Mark Spiegel, a Tesla bear and founder of Stanphyl Capital, noted that despite emission credit sales accounting for 55% of Tesla’s operating income, the overall operating margin remained at a meager 6.3%. He criticizes this performance as "bubble-fraud" and believes the company deserves to be valued at a much lower multiple of its earnings.
A Divided View
However, Jim Cramer, a prominent financial commentator, echoed Jonas’s stance, defending Tesla and its CEO, Elon Musk. While recognizing the earnings miss, Cramer saw merit in Musk’s narrative around self-driving technology, energy production, and humanoid robots. He believes that Tesla would have seen positive stock movement if not for the broader rotation away from technology stocks.
Stock Performance and Outlook
Tesla shares closed Friday’s session down 0.20% at $219.80, reflecting a 11.52% year-to-date decline. However, on Monday’s premarket trading, shares gained 0.80%.
This divergence highlights the uncertainty surrounding Tesla’s future. While Jonas’s view of Tesla’s non-automotive businesses offers a promising perspective, achieving sustained growth and profitability remains challenging. The company’s ability to navigate the electric vehicle price war, stabilize its margins, and effectively deliver on its ambitious projects across various sectors will significantly impact its stock performance moving forward.
