In a recent analysis, Gary Black, Managing Partner at The Future Fund, shared insights into how investors perceive Tesla Inc. (TSLA). On social media platform X, he emphasized that Tesla is increasingly viewed as more than just an automotive company, reflecting its high price-earnings (P/E) ratio compared to traditional automakers.
Black pointed out that Tesla’s future expected earnings per share (EPS) growth is projected to be between 25% and 30%. This positions Tesla at a staggering P/E ratio of 84x for fiscal year 2025 adjusted EPS, in stark contrast to the mere 5-6x ratios seen in legacy auto companies. He elaborated that a company’s P/E ratio is fundamentally linked to its anticipated growth rate rather than its current business model. Tesla’s involvement in electric vehicles (EVs) and autonomous driving — sectors recognized for their rapid growth — further supports this elevated valuation.
According to Black, a significant shift will occur once Tesla’s profits from its automotive segment dip below 50% of its total profit. He noted that, as of the last quarter, the automotive business still accounted for 80% of Tesla’s overall profit. This indicates that while Tesla is still largely recognized for its automotive operations, its diversification into high-growth areas is reshaping investor perceptions.
In light of these developments, Black has revised his price target for Tesla stock, increasing it from $270 to $300 over the next 6 to 12 months. This adjustment is based on improved earnings forecasts and favorable market indicators. His adjusted EPS estimates for Tesla stand at $2.40 for fiscal year 2024 and $3.60 for fiscal year 2025, which slightly surpass Wall Street’s consensus expectations.
Tesla’s stock had been experiencing a downward trend since the beginning of the year. However, the company’s recent third-quarter earnings report, released on October 23, has changed the narrative. The report revealed an earnings per share of 72 cents, exceeding the consensus estimate of 58 cents per share. During the earnings call, CEO Elon Musk expressed optimism, projecting a growth rate of 20% to 30% in vehicle sales for the upcoming year, which addressed investor concerns regarding a potential decline in EV demand. For 2024, Tesla aims to surpass its delivery figures from the previous year, which could further bolster investor confidence.
Despite the positive outlook, Tesla shares closed down 2.5% at $262.51 on Monday. Year-to-date, the stock has recorded a 5.7% increase and has surged nearly 21% over the past five days, indicating a possible recovery in investor sentiment following the earnings report.
As the electric vehicle market continues to evolve, Tesla’s unique positioning and growth potential remain a focal point for investors. The company’s foray into autonomous driving and other innovative technologies could unlock significant revenue streams in the future, further distinguishing it from traditional automotive players.
Industry analysts and investors alike are closely monitoring Tesla’s trajectory in the coming months, particularly as the company navigates the competitive landscape of the automotive sector and expands its footprint in high-growth markets.
As the market adapts to these changes, Tesla’s performance will be pivotal in setting trends and shaping the future of mobility.
