Longtime Tesla Bear Still Expects A Sharp Valuation Plunge

Investors looking to buy the dip in Tesla Inc TSLA's stock may want to first listen to why notable bear analyst Gordon Johnson expects shares to plunge 70 percent this year toward his $88 year-end price target.

What Happened

The bullish case for Tesla in recent years was based on the notion that the company merely has to ramp production to satisfy the illusion of strong demand, Johnson said. Part of this theory may have been backed up by the fact that Tesla operated "unchallenged" — until now, the Vertical Group managing director said during a recent CNBC "Trading Nation" segment.

What Happened

Tesla will not only face "real competition" for the first time in the back half of 2019, but the federal government's $7,500 tax credit for Tesla's electric cars was cut in half this week, Johnson said. Investors may want to brace for a "huge falloff of sales" as soon as the first quarter, he said.

Investors assuming a 10-15-percent drop in sales this year are likely way off base, and the real numbers will be "astronomically higher than that" and "shock people the downside," Johnson said. 

What's Next

Tesla's third-quarter earnings report impressed investors with a bottom-line beat and a profit for the first time in two years.

But it may be downhill from here, as the company will never "reach that level of earnings again," Johnson said. 

The implied multiple on Tesla's stock at nearly 100 times Q3 earnings is overcooked, as it is clear the company is "not growing at that level," the analyst said. 

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