Tesla is 1,000% overvalued, market price 'completely disconnected from reality', one analyst says

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Tesla stock may be enjoying a remarkable rally in 2023, but there are those who think the EV maker is grossly overvalued.
One analyst says the carmaker’s true value lies closer to $26 per share than $290 – suggesting it’s more than 1,000% overvalued.
“The company’s fundamentals are disconnected from reality,” New Constructs CEO David Trainer wrote in a note Thursday. 

Tesla continues to ride the AI-fueled tech stock boom,, with its shares up a 113% this year and its market cap briefly topping $900 billion this week. Even a so-so second-quarter earnings report hasn’t dampened investors’ spirits much. 

But not everybody is sold on the dream. 

David Trainer, CEO of investment research firm New Constructs, just published a scathing note on the company on Thursday, responding to its latest earnings release. At a share price of $290 apiece, Elon Musk’s electric vehicle-maker was more than 1,000% overvalued, according to him.

“Tesla is a terribly overvalued stock that we think is worth closer to $26 per share instead of its current price of about $290 per share,” he wrote on Seeking Alpha. The carmaker’s shares peaked at $299.29 this week, before they fell almost 10% Thursday in response to its latest financial results.

The EV market leader’s gross profit margin shrank to 18.1% in the April-June period following the several price cuts it announced this year, from 19.3% in the first quarter.

Trainer points out that Tesla cars are no longer oversubscribed and questions the company’s “lackluster” production figures. “Tesla is no longer selling every vehicle it can make,” he said. 

Using a so-called reverse discounted cash flow model, he argues that to justify its current stock price, Tesla would need to boost its return on invested capital to levels not achieved by even the most profitable businesses in the world. 

After plugging in the numbers, he concludes that Tesla is worth just $26 per share – 90% below its current valuation. 

Musk himself is all too aware of Tesla’s production and delivery shortfalls, beginning his Wednesday conference call with the acknowledgment.

“We continue to target 1.8 million vehicle deliveries this year, although we expect that Q3 production will be a little bit down because we’ve got summer shutdowns for a lot of factory upgrades, so just probably a slight decrease in production in Q3 for sort of global factory upgrades,” he said.

Following the earnings release, Tesla shares tumbled almost 10% on Thursday – its worst day since April. 

But Trainer’s conclusions could not be further from fellow analyst Dan Ives. Even as Tesla’s Q2 underwhelmed the market’s expectations, the Wedbush CEO has become even more bullish on the stock. 

He compared Tesla with Apple’s position in the late 2000s, where its stock price did not yet reflect its earnings potential.

“We view Tesla where Apple was in the 2008/2009 period as Cupertino was just starting to monetize its services and golden ecosystem,” Ives wrote in a research note on Thursday. “We view this quarter as a major step in the right direction – as Tesla is playing chess while others play checkers.”