On November 11th, Tesla's stock price continued its upward trend from last week, rising nearly 9% to close at $350, setting the highest closing price in over two years. Since the dust settled on the US election on November 5th, Tesla's stock price has risen more than 39%, with a market value increase of about $300 billion, surpassing $1 trillion and jumping to the seventh place in the US stock market value ranking.
The market generally believes that Trump's victory will boost Tesla's autonomous driving and artificial intelligence businesses, which is the key to this round of gains. But some analysts say that Tesla's valuation has reached 95 times after this round of price increases, while Nvidia's valuation is 44.2 times, which means that even with the support of AI, Tesla's valuation is indeed high.
The market is optimistic about Tesla's prospects
Many funds that previously held short positions in Tesla have begun to withdraw. According to Hazeltree's data, as of November 6th, only 7% of hedge funds were still net short sellers of Tesla, while the proportion of short sellers of Tesla reached 17% in early July.
According to data from S3 Partners, hedge funds short of Tesla lost at least $5.2 billion on paper during the trading period from November 5th to November 8th.
At the same time, option traders are betting that Tesla will continue to rise, with the premium of call options over put options over the next three months reaching the highest level since early 2021.
Dan Ives, an analyst at Wedbush Securities, a Wall Street investment firm, believes that Trump's victory will "completely change" Tesla's autonomous driving and artificial intelligence businesses, raising Tesla's target price from $300 to $400.
In Ives' view, the approval process for Tesla's fully autonomous driving (FSD) and Robotaxi autonomous taxis by the US federal government may accelerate significantly in the future.
Gene Munster, an analyst at Deepwater Asset Management, a hedge fund, believes that regulatory challenges are greater than technical challenges for Tesla's autonomous driving technology. Therefore, the approval of Tesla's autonomous driving plan is crucial for technological advancement, which can also explain why the market is currently optimistic about Tesla's future growth prospects.
Controversy over the sustainability of high valuations
However, based on Tesla's valuation, after this significant increase, Tesla's forward P/E ratio has reached 113 times, exceeding three times the forward P/E ratios of tech giants such as Apple, Microsoft, and Amazon. FactSet data shows that the forward P/E ratios of Apple, Microsoft, and Amazon are 30.31 times, 31.57 times, and 35.5 times, respectively.
Tesla has always hoped that the market would see it as an AI company, but if Tesla's valuation is on par with Nvidia's 42.56 times, it means its stock price will drop by more than half compared to the current level.
It should be noted that from Tesla's own fundamentals, the overall growth rate in the third quarter is still lower than the company's long-term normal level. The total revenue of automobiles in the third quarter increased by 2% year-on-year, after two consecutive quarters of decline. This is still weak compared to Tesla's core business's average quarterly growth rate of 45% from 2020 to 2023.
In addition, there is controversy over whether Tesla's profit margins can continue to improve. Tesla's Chief Financial Officer stated during the third quarter earnings conference call, "Given the current economic environment, maintaining these profit margins in the fourth quarter will be challenging
Morgan Stanley analyst Adam Jonas stated in a previous report that Tesla's third quarter report can be seen as the "bottom" of the automotive industry's profit expectations and sentiment, but whether Tesla's future revenue growth can truly steadily climb remains a question mark.