'Dean Of Valuation' Says Tesla Still Has Long Way To Go To Justify Stock Price

Tesla Inc. TSLA cannot justify its current stock price, according to a New York University (NYU) professor.

Tesla Has A Long Way To Go

Aswath Damodaran told CNBC's Squawk Alley that Tesla would need to generate revenues like Volkswagen Group VLKAFdoes in a decade and margins like those of Apple Inc. AAPL along with making manufacturing investments “like no other manufacturing company before" to justify its current stock price.

Damodaran is known for his precision analysis of stocks and has earned the title, “dean of valuation.”

Tesla Vs. The Big Boys

Volkswagen had sales revenues of $255 billion in the fiscal year 2018, according to CNBC, while Apple’s Q1 2020 revenue was $91.8 billion.

Tesla has already become the first $100 billion public car company and forged ahead of Volkswagen in market value. It reported revenue of $24.6 billion in 2019.

Not Sold On Tesla So Damodaran's Sold Off

Damodaran has published several books on equity valuation and corporate finance and has been right before. He sold Apple share in mid-2018 at $230 and was a willing buyer again in December 2018 when the stock traded around $180. 

In an interview he gave Forbes in 2018, he heaped praise on Tesla founder Elon Musk, but noted that Tesla was not a company, but rather a reflection of its founder. He said about Musk, “He’s a visionary, he’s a genius, he’s an out of the box thinker, but he has no focus and discipline.  He keeps wandering off into these alleyways, and you follow him…”

The NYU professor had been an investor in Tesla but sold his shares when the stock reached $640. He articulated his views in the CNBC program regarding the stock price saying, “There are lots of barriers along the way that the company has to overcome, and that would be my concern paying the current price.” 

The analyst appreciated Tesla’s decision to raise additional capital, mentioning it was necessary to grow “into its valuation.” However, Damodaran also made it clear that Tesla cannot “simply be a car company” to justify further upsides. 

Other analysts have expressed contrary views with Alexander Potter of Pipers Sandler reiterating a Buy on Tesla at $729 and Ben Kallo of Robert W.Baird reiterating a Hold at $650.

Price Action

Tesla shares traded 0.5% lower at $800  in the after-hours markets on Thursday. The shares had closed the regular session 4.78% higher, at $804.