Is Tesla Stock Headed to $1,400 or $67? Why Predicting Auto Makers’ Performance Is Tricky.

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Who needs parody cryptocurrencies when car stocks are so exciting? ford motor,

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General Motors,

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Tesla,
And Rivian Automotive’s price each fluctuated more than 10% during the first trading week of the year. This, after some major gains for the group last year.

It will not be easy to predict performance from here. I recently spoke with one analyst who says Tesla stock (ticker: TSLA) is headed for $1,400, and another who says $67. You know what they say: Sometimes you have to agree to disagree by a factor of 20.

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Tesla took the first big step on Monday, jumping 13.5% after the company reported fourth-quarter deliveries of 308,600 vehicles, over estimates and its own record. Following this, Ford (F) gained 11.7% on Tuesday after announcing an increase in production of its first electric pickup, the F-150 Lightning, to 150,000 units per year.

By that week, General Motors stock (GM) was already up 12% in anticipation of the unveiling of its Chevy Silverado electric pickup truck, which was planned to be held at the Consumer Electronics Show on Wednesday. But the shares slipped on the day of the announcement. Maybe investors were disappointed about the timing of the delivery, or maybe it was because the broader market indicated that interest rates could rise sooner than expected.

What Ford and Chevy pickups have in common is that they will target workers in immaculate Carhartt jackets as well as suburban hunters. The initial versions will cost between $40,000 and $100,000.

The Chevy Electric wins on specs—long battery range and fast charging. But Ford wins when it brings its truck to market this spring. Chevy buyers will have to wait until spring 2023 for the cheap truck and 2023 for the deck-out. GM will debut electric Chevy sport utility vehicles in 2023, including an Equinox that will start at $30,000.

Pickup trucks could be the key to America’s electric-vehicle uptake. Last year, EVs hit an estimated 4% of total US sales, up from 2%. But Europe and China are far ahead with low teen penetration rates. Americans have so far had few electric options for the types of vehicles they choose to buy. Last year, the Ford F-150 led as usual in new vehicle sales in the US. The only surprise was that the Ram 1500 pickup surpassed the Chevy Silverado 1500 to become No.

An electric Ram will take until 2024, according to owner Stelantis (STLA), a roll-up of American, Italian and French brands. Start-up Rivian (RIVN) says it will ship electric pickups this year, but the stock fell 11% last Wednesday as early backer Amazon.com (AMZN) said it would ship with Ram for a delivery truck. ordering. Tesla’s Cybertruck was expected last year, but has been delayed.

Meanwhile, the demand for stalled vehicles shows that there is an uptick. Amid last year’s shortfall, US light-vehicle sales stood at an estimated 15.1 million units, up close to 17 million a year before the pandemic. Average trading prices are up 30% from pandemic levels, and incentives as a percentage of prices are at record lows.

Credit Suisse says this year, unit sales are expected to increase marginally, but by next year, when showrooms are full and prices have come down, the units could reach 18 million. It says EV penetration in the US will double again this year to 8% and top 50% by 2030.

One risk for older carmakers—that they’ll stand still—is that they will have to increase EV units with lower profit margins to offset the losses encountered in higher-margin gasoline models.

Carmakers, on the other hand, may shift capacity from gasoline vehicles to electric vehicles before customers wish to switch. According to Morgan Stanley analyst Adam Jonas, this could leave gas vehicles with higher prices and profit margins, leading to a longer, lucrative “farewell tour.”

The prices appear to be appalling. Despite doubling in price last year, Ford has 12 times estimated earnings. GM sells nine times.

The bull case on Tesla is that it will do great things in both the cars and the surrounding markets. Philip Houchois, who covers Jefferies stock, saw it rise 35% from recent levels to $1,400. Tesla lags behind legacy rivals on things like build quality and finish, but those are solvable problems, he says. This leads to software, battery and autonomy, which are sustainable advantages. He sees Tesla using software to expand the utility and profit potential of vehicles.

Most versions of the Tesla bear case assume the company will do well in cars, but not enough to justify a market cap above $1 trillion. For example, JPMorgan’s Ryan Brinkman called his $295 price target “not rude,” even though it means a 70% stock drop, as it puts Tesla slightly ahead of world leader Toyota Motor(TM). , despite producing a tenth as many cars for now.

Then there’s Gordon Johnson. Prior to starting GLJ Research, he worked at large investment banks, where he covers 20 stocks. He’s bullish on uranium stocks and bearish on cannabis, but anyone he wants to talk about, he says, has his $67 price target on Tesla. “I have received death threats,” he says. “Now I don’t even answer the phone when I get unknown calls.”

In Johnson’s view, there’s no reason to believe Tesla will do well in adjacent businesses. “You can take McDonald’s and say they’re going to start selling Nikes and chairs and pianos and add up to those valuations,” he says. In cars, he calculates that the stock price implies a production ramp-up that no carmaker could achieve. “Selling a car is not selling an iPhone or a shirt,” he says.

It doesn’t look if Tesla’s three-year stock rise of nearly 1,400% has shaken Johnson’s confidence. After walking me through his valuation model, he said he was concerned that his price target might be too high.

Write Jack Hough at [email protected] follow him on twitter and subscribe to Barron’s Streetwise Podcast,

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