Gary Black Calls Out Tesla Bears For 'Slapping' Auto Industry Valuation Technique On Elon Musk's EV Business: 'Stark Differences In Growth Prospects'

Prominent Tesla Inc. TSLA analyst Gary Black has aimed at “Tesla bears,” particularly long-term bear Drew Dickson, for what he calls a fundamental misapplication of traditional automotive price-to-earnings (P/E) ratios to Elon Musk‘s burgeoning electric vehicle business.

What Happened: Black argues that the approach of using the auto industry’s P/Es for Tesla overlooks the stark differences in growth trajectories between the rapidly expanding EV market and the declining internal combustion engine (ICE) vehicle sector.

“The biggest mistake $TSLA bears make is slapping an auto industry P/E on TSLA's EV business,” said Black.

Black dissected Dickson’s latest report, which attempts to value Tesla’s automotive business by applying an average P/E of 6.5x to 7.7x, derived from traditional automakers like Ford Motor Company F, Bayerische Motoren Werke AG (BMW), Mercedes-Benz Group AG, General Motors Company GM, Renault SA, Stellantis NV STLA, Volkswagen, Honda Motor HMC, Toyota Motor Corporation TM, and SAIC Motor. Corp. Ltd.

Dickson’s analysis suggests that even at a generous 15x P/E for Tesla’s automotive business, its market capitalization would be around $100 billion, implying that the market already assigns a staggering $1 trillion valuation to Tesla’s non-automotive ventures such as FSD, robotaxis, Optimus, and energy business.

According to Black, Dickson’s analysis “ignores the fact that TSLA is 100% EVs which are growing at 25-30% per year while ICE vehicles are in a state of permanent decline,” Black posted.

“Of course there should be a huge difference in P/Es between EV manufacturers and ICE manufacturers given stark differences in growth prospects.”

Why It Matters: Benzinga Pro data also highlights that Tesla was the most overvalued among its peers.

Automobile Stocks	Forward P/E
Tesla Inc TSLA	163.934
General Motors Company GM	5.269
Ford Motor Company F	8.475
Honda Motor HMC	9.901
Toyota Motor Corporation TM	9.891
BYD BYDDY	57.804
Li Auto Inc LI	17.857

Black, who is not holding Tesla in his current portfolio, did express some near-term concerns. He highlighted the asymmetrical risk/reward associated with the upcoming Austin robotaxi test, scheduled to begin on June 22nd.

He also voiced apprehension that the “more affordable vehicles” targeted for the third quarter might be lower-cost, which could cannibalize sales of more expensive trims.

Finally, Black anticipates that Tesla’s second quarter volumes are likely to disappoint, projecting approximately 380,000 deliveries against a Street consensus of 402,000. He attributes this potential shortfall to the ongoing EV price war in China, led by BYD BYDDY.

Price Action: TSLA shares were 0.61% higher in premarket on Wednesday. The stock was down 16.61% year-to-date, but it has returned 71.09% over the year.

About 26 analysts tracked by Benzinga, covering TSLA, have a consensus target price of $309.76 apiece, with a ‘hold' rating.

The targets range from $19.05 to $500, and the recent ratings by Piper Sandler, Morgan Stanley, and Baird imply an 18.59% upside for the stock.

Benzinga Edge Stock Rankings shows that Tesla had a stronger price trend over the short, medium, and long term. Its momentum ranking was solid; however, its value ranking was poor at the 9.41th percentile. The details of other metrics are available here.

The SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust ETF QQQ, which track the S&P 500 index and Nasdaq 100 index, respectively, rose in premarket on Wednesday. The SPY was up 0.31% at $599.39, while the QQQ advanced 0.38% to $531.07, according to Benzinga Pro data.