On Tuesday, RBC Capital adjusted its valuation on Tesla Inc. (NASDAQ:TSLA), raising the price target slightly to $298 from the previous $297, while reiterating an Outperform rating on the electric vehicle manufacturer's stock. The revision follows a comprehensive analysis that now includes the value of Tesla's Megapack battery storage systems, offset by a reduced valuation of the company's Autonomy business due to lowered licensing penetration expectations.
The firm's analyst visited Tesla's battery storage facility last week, which led to the inclusion of an additional $117 billion in value to Tesla's overall valuation, equating to an increase of $34 per share. This new assessment accounts for 11% of the total price target and is based on the assumption that Tesla will maintain a 15% market share in the sector. Despite the company's 30% cost advantage over competitors and the potential for a 25% EBITDA margin as battery costs decrease, the analysis remains conservative.
In terms of vehicle sales, RBC Capital projects Tesla to sell approximately 2.5 million vehicles annually in North America, 800,000 in Western Europe, and 1.7 million in China by 2035. The forecast includes around 2.3 million units per year for the combined sales of Model 3 and Model Y, and a significant contribution from the new, more affordable Model 2. Despite management's expectations of high volumes and lower production costs for the Model 2, the analysis conservatively does not account for the potential profitability of this vehicle, assuming breakeven instead.
The report also touches on the reduced expectations for Tesla's Full Self-Driving (FSD) and Robotaxi licensing, with penetration forecasts cut from 20% to 10%. This adjustment reflects a $34 per share decrease for the Robotaxi business and a $2 per share decrease for FSD, influenced by customer feedback and cautious driving in urban areas. Despite the lowered forecast, Autonomy remains a significant part of Tesla's valuation, representing approximately 80%.
With these factors considered, the price target adjustment reflects a net change, with the inclusion of the Megapack valuation and the car business slightly outweighing the reduced expectations in the Autonomy segment. The new price target of $298 signifies a modest increase and continued confidence in Tesla's market performance.
InvestingPro Insights
As RBC Capital revises its price target for Tesla Inc. (NASDAQ:TSLA), investors are keen to understand how the stock is positioned in the current market. According to the latest data from InvestingPro, Tesla holds a substantial market capitalization of $599.19 billion, signaling the immense size and influence of the company within the industry. Despite the high valuation, Tesla's P/E ratio stands at 40.03, suggesting that the stock is trading at a premium relative to its earnings. This is further emphasized by a P/E ratio of 39.95 over the last twelve months as of Q4 2023.
One of the key InvestingPro Tips notes that Tesla's stock price movements are quite volatile, which is corroborated by a 21.19% drop in the 3-month price total return as of the current year. This volatility is a crucial consideration for investors looking for stability or those trying to time the market. Additionally, Tesla's strong market presence is highlighted by its status as a prominent player in the Automobiles industry, which is an important factor for investors seeking exposure to leading companies in the sector.
For those interested in a deeper analysis, InvestingPro offers additional tips on Tesla, including insights into the company's cash flow, liquidity, and valuation multiples. There are 19 additional InvestingPro Tips available, which can provide a more comprehensive understanding of Tesla's financial health and market position. To access these insights, investors can visit https://www.investing.com/pro/TSLA and use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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