As Tesla, Inc.‘s TSLA core electric-vehicle manufacturing business goes through a downturn, bullish analysts began to flaunt the company’s energy storage business as the next big revenue driver. But GLJ Research’s Gordon Johnson on Monday questioned the merits of this thesis.
What Happened: “How, possibly, is TSLA's battery assembly business, with ~20% gross margins and ~$5.7bn in annualized revenues, worth hundreds of billions of dollars when… global battery manufacturing leaders, like LG Chem, trade below <1x revenues? Serious question?” Johnson argued.
The analyst noted that LG Chem currently trades at 0.8 times its revenues on a “Total Enterprise Value” basis. He added that the annualized revenue of Tesla Energy is currently at $5.7 billion, and both Tesla and the South Korean company have similar gross margins of around 20%.
Applying the same 0.8 times multiple to Tesla Energy revenue gives $4.6 billion in total value or $2 per share, Johnson said.
“So, WHY are the lion's share of journalists and financial analysts giving this segment >$200/shr in value, or ~100x what it's worth, ASSUMING, again, the same TEV/Sales multiple as industry leader LG Chem,” he wrote on X.
“Is it b/c the stock price is ‘too high,’ and thus a new narrative is needed?”
Johnson also noted that Tesla buys a majority of its cells from Panasonic, China’s CATL, and LG. The in-house 4680s the Elon Musk-led company is making is a “manufacturing disaster,” with no meaningful advantage in energy density versus the older 2170Ss at its peak level, he claimed.
Even if Tesla successfully makes its own 4680 cells, other manufacturers can make and sell them to anyone, the analyst said. He noted that BMW announced it would buy them from CATL and Eve.
See Also: Everything You Need To Know About Tesla Stock
Why It’s Important: Tesla is headed to another quarter of subpar performance, according to analysts and those on the Street who crunch numbers.
The predicament is blamed on weakening EV demand and competition. On Monday, the stock slid over 7% before settling at $188.14, according to Benzinga Pro data.
The pullback came after an official report from China showed weaker deliveries of made-in-China Tesla EVs and rumors on the Street that first-quarter deliveries will see a sequential decline.
Piper Sandler analyst Alexander Potter said in an early February note that Tesla’s EV business, excluding self-driving software, is only worth $135 per share. Justifying his price target, which was above $135, he claimed Tesla’s Other businesses will emerge to drive upside, with Tesla Energy closest to an upward inflection.
RBC Capital Markets analyst Tom Narayan recently said Tesla’s Megapack utility-grade battery storage business alone justifies a valuation of $120 billion.
Price Action: Tesla shares crashed over 7% to $188.14 in the last session, and were down 2% in Tuesday’s premarket. So far this year, the stock is down over 24%, according to data from Benzinga Pro.
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Photo courtesy of Tesla
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