US stock futures slightly higher, Tesla gets a sell rating

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Shares
of
Tesla
are
poised
for
a
2%
decline
at
the
open
as
the
rest
of
the
market
wrestles
with
results
from
financials
(mixed
bag
there
with
Citi
+3%
and
JPM
-1.2%).
Spoos
are
up
3
points.

The
decline
in
TSLA
follows
an
8%
drop
yesterday
that
came
on
the
heels
of
a
sensational
11-day
rally.

The
sell
target
from
UBS
is
$197
as
they
say
the
stock
ran
too
much
and
too
soon:

Increasingly
difficult
to
justify
valuation

We
are
downgrading
TSLA
from
Neutral
to
Sell.
TSLA
is
more
than
just
an
auto
company,
and
there
are
some
positive
developments
(e.g.
Energy,
FSD)
that
add
additional
support.
This
is
increasingly
important
as
expectations
for
the
Auto
business
deteriorate.
TSLA
has
always
had
a
premium
attached
to
it
for
other,
future,
growth
opportunities,
but
that
premium
is
difficult
to
justify.
This
premium
has
widened
as
noted
we
believe,
on
an
FSD
narrative.
Although
we
differentiate
between
businesses
of
substantial
value,
at
current
levels,
we
are
still
left
with
a
>$500bn
“stub”
for
that
future
growth
opportunity.
Even
if
this
is
a
5-year
time
horizon,
that
implies
a
5-year
future
value
of
$1T.
And
this
is
just
to
justify
current
levels;
one
would
need
to
see
an
even
larger
opportunity
to
see
upside
from
here.
In
a
higher
interest
rate
environment,
the
cost
of
making
progress,
investment
is
costly,
pace
of
improvement
may
also
be
payoff
is
long.
If
market
exits
a
growth
mindset,
or
AI
diminishes,
this
may
impact
TSLA’s
multiple
and
indeed
it
may
be
that
market
focuses
on
other
new
opportunities
realizable
on
a
longer
time
horizon
(or
not
at
all),
with
the
stock
at
86x
NTM
P/E,
downgrade
to
Sell.

When
ex-auto
contribution
to
price
nears
the
highs,
good
opportunity
to
sell

Our
valuation
attribution
analysis
shows
that
the
market
has
(fairly
consistently)
valued
TSLA’s
core
auto
business
between
$60-$90/share.
The
“other
attribution”
has
been
volatile
but
at
past
peaks
was
a
~$140/share.
With
the
recent
run-up,
this
is
now
~$175/share.
This
is
above
what
we’ve
seen
in
shares
larger
contribution,
and
implies
a
lower
trend
down.
Our
SOTP
view
values
auto
at
~$57,
Energy,
which
shows
recent
strong
improvements
(and
higher
margin)
is
worth
~$18.
We
estimate
FSD/robo-taxi
which
we
think
(see
UBS
Evidence
Lab
FSD
survey
inside),
but
that’s
only
~$93
of
the
more
easily
identifiable
value,
implying
a
premium/future
option
value
that
is
~61%
of
today’s
price.

Where
could
we
be
wrong?
1)
TSLA
price
disconnection
from
fundamentals
has
occurred
in
the
past
and
can
persist
for
a
while.
2)
2Q24
results
may
be
above
expectations,
causing
positive
revisions
to
25/26E
helping
to
sustain
momentum.
3)
Energy-
TSLA
is
demonstrating
strong
growth
in
Storage,
which
should
result
in
upside
to
numbers
over
time,
although
we
believe
TSLA
is
making
headway
in
its
technological
initiatives
and
should
generate
improved
gross
margins,
near-term
challenges
(negatively
impact),
importantly
market
has
always
liked
the
new
vehicle,
as
that
could
change
the
25/26E
numbers.
But
consensus
already
considers
higher
levels,
and
we
believe
the
vehicle
could
pressure
auto
margins.