Tesla Valuation “Overheated” Believes BofA As Scandalous China Delivery Claims Emerge

Ramish Zafar
From Tesla's Autonomy Day 2019 presentation. The image is of a wheel hub assembly of an unknown Tesla vehicle, with the company's branding on the red brake caliper being clearly visible. (Image Credit: Tesla Inc)

This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.

Electric automobile and renewable energy products manufacturer Tesla Inc (NASDAQ:TSLA) is all set to report its earnings results for the second quarter of the fiscal year 2020 at the close of trading today. Tesla, which managed to beat Wall Street estimates for vehicles deliveries during the quarter has soared to new heights on the stock market following this beat as investors and traders express their optimism for the company's ability to turn a profit – an occurrence that will bring it one step close to being included in the Standard and Poor 500 stock index.

As we head to Tesla's earnings, investment banks and research firms have started to weigh in on the company's extraordinary stock market performance. Yesterday, investment bank JMP Securities stated its opinion that all immediate term growth in the company has already been discounted in its stock price and research firm Wedbush estimated that Tesla stands to deliver 450,000 vehicles during the course of this year - which is just 50,000 vehicles short of the company's own delivery estimate set before the pandemic-induced global economic disruption.

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Now, we've got another report from the Bank of America that doesn't quite express the optimism in Tesla's fortunes as is exhibited by Wedbush.

Tesla Valuation Unsupported By Fundamentals Believes Bank of America As Company Heads Into Crucial Earnings Release

Bank of America's analyst note is perhaps one of the more scathing for Tesla that we've come across lately. It's penned by analyst John Murphy who believes that the recent surge in stock price that the company has exhibited on the open market is not supported by its fundamentals. Instead, Murphy believes that "momentum and low rates" have been the primary drivers behind the meteoric surge in Tesla's share price. The company, which was trading near the $900/share price mark at the end of last month is now comfortably above the $1,500/'share price mark even as virus-related uncertainty rages around in its key American market.

Keeping the aforementioned share prices in mind reveals that Murphy's new price target for Tesla removes all the growth that the shares have shown over the course of this month. Despite receiving a price target boost from BofA, Tesla's new price target of $800/share is still significantly lower than what the company is currently trading at in the open market.

The analyst also attributes Tesla's growth to potential buying sprees ahead of the company's potential addition to the S&P 500 market index.

Tesla shares dropped by 4.54% during trading yesterday and they are slightly up in pre0market trading today. The red arrow above shows the stock's meteoric growth over the course of the past 12 months. (Data Credit: Koyfin)

Looking into his crystal ball, Murphy predicts that the current atmosphere surrounding the company can support the stock's current rally. Yet, despite this prediction, the analyst maintains his view that the current Tesla rally is "overheated". He justifies the price target hike by stating that it is necessary to reflect higher multiples and estimates for the company, and he further goes on to state that stock price increases and funding costs for Tesla's future are inversely correlated.

The BofA note comes a day after some reports in the Chinese press threw doubt into Tesla's recent delivery increases in the East Asian country. A research note by analyst Gordon Johnson states his belief that Tesla offered steep discounts on its vehicles to entice dealers into purchasing them, and he further believes that these dealers are now offloading their stock on the online platform Pinduoduo.

The analyst also believes that Tesla's near term demand in China is not as healthy as some would like to believe, and as a result, the company is set to experience higher gross margins. Demand outlook in China, gross margins, profitability and delivery estimates will be among the key items on investor, analyst and press agenda as we head into Tesla's earnings report later in the day today.

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