Tesla's valuation has 'returned to Earth' so it's time to start buying stock in Elon Musk's EV maker, Berenberg says

  • Tesla’s valuation has “returned to Earth” so it’s time to dive in and buy, a Berenberg strategist said. 
  • The Elon Musk-run carmaker’s price cuts are an “investment in growth,” analyst Adrian Yanoshik said.
  • CEO Elon Musk’s distraction with Twitter and COVID demand risks in China seem loaded into the share price, he said.

Tesla’s valuation has improved to the point that the stock is now a buy, a top Berenberg analyst has said, describing the electric-vehicle maker’s recent price cuts as an “investment in growth”. 

In a recent note, analyst Adrian Yanoshik said Tesla’s CEO Elon Musk’s distraction with Twitter and COVID-19 disruption risks to demand in China appear to be factored into the share price. 

“Tesla’s valuation has sufficiently returned to earth to turn us positive on the shares,” Yanoshik said. 

After a positive start to 2023, Tesla’s market value stands at around $560 billion. That’s after a hellish 2022, where shares sank 65% from the start of last year, leading to a loss of $700 billion in market cap.

The stock’s price is now on track for its best month since 2020, as better-than-expected corporate earnings and prospects that the Federal Reserve wil start cutting interest rates improve the overall investor mood. Shares in Tesla are up over 58% in January so far, standing at $172.32 at last check Tuesday.

Yanoshik trimmed his stock price target for Tesla to $200 a share from $255, but upped Berenberg’s rating to buy, following the stock’s 30% decline over the last three months. 

He said Tesla’s recent price cuts are an “investment in growth” and reflect its cost leadership strategy. With Tesla slashing prices of its EV models, it’s forced competitors like Ford to hit back. Ford cut the price of its electric Mustang Mach-E, giving rise to a price war. 

“Moreover, we think that ramping its battery cell production offers the company further economies of scale, although we understand that this remains challenging,” Yanoshik said. 

He added that after a “price-led blip” in 2023, the Hamburg-based bank expects Tesla could take market share at a gross margin that tops 25%. The analyst pointed to a shift in some production away from a California plant with high labor costs and dated equipment.

Tesla’s fourth-quarter earnings last week showed that its automotive gross margin declined to 25.9%, the lowest in five quarters. Despite that, Musk said he expects to sell 2 million vehicles this year after recent price cuts in a bid to boost demand.