Valuation guru Aswath Damodaran thinks Tesla’s stock is overvalued at the current market price

Valuation Expert Aswath Damodaran Suggests Tesla May Be Overvalued at USD 200 per share, proposing a USD 180 valuation.

Aswath Damodaran, a respected finance professor at New York University’s Stern School of Business, has recently weighed in on Tesla’s valuation in a blog post on November 1, 2023. Despite not being a Tesla owner or an expert on the company’s intricate details, Damodaran is known for his financial expertise and previous attempts at valuing Tesla. He now suggests that Tesla, currently trading at USD 200 a share, might be overvalued and values it at USD 180 per share.

Damodaran’s History with Tesla Valuation: 

Damodaran has been attempting to value Tesla annually since 2013. He openly acknowledges his past misjudgements regarding the company’s worth but expresses no regrets, emphasizing the learning process involved in valuing such a dynamic entity. His most recent valuation took place in January 2023 when Tesla experienced a significant drop in its market capitalisation following a 60% loss.

Tesla’s Recent Performance: 

Tesla has experienced a roller-coaster ride in the stock market. After a challenging period in early 2023, the company’s stock rebounded in the first half of the year before facing another decline, partly triggered by disappointing Q3 results. In this quarter, Tesla’s revenue increased by 9% to USD 23.35 billion. However, its operating income plummeted by 52% compared to the same period in the previous year, standing at USD 1.76 billion.

Diverse Revenue Streams: 

Damodaran notes that Tesla’s business has diversified significantly in 2023, with revenue sources expanding to include autos, energy, software, and the highly anticipated robotaxi market. While he maintains a generally positive outlook on each of these segments, he recognizes that valuing the auto software and robotaxi businesses is challenging due to their nascent nature.

Valuation Conclusion: 

Considering all these factors, Damodaran calculates an equity value of USD 625 billion for Tesla. This equates to a per-share value of USD 180. Although autos contribute the most significant portion to this value, Damodaran highlights the increasing importance of the software and robotaxi sectors, emphasizing that the success of Full Self-Driving (FSD) technology will have a substantial impact on Tesla’s overall value.

Tesla’s Current Stock Price: 

At its current trading price of around USD 218 per share, Damodaran’s analysis suggests that Tesla might be overvalued based on his assessment. He mentions that the stock is just a couple of unfavourable market days away from becoming a buy for him, as he has set a limit buy order at USD 180. However, he cautions that it might never reach that level and underlines the absence of a significant margin of safety at that price.

Market Conditions: 

It is essential to consider that Tesla’s stock price has experienced fluctuations recently. While the year-to-date return stands at a substantial 90%, the shares have seen an 18% drop over the past month. This volatility is characteristic of the electric car manufacturer’s stock.

Aswath Damodaran’s valuation analysis offers a distinctive perspective on Tesla’s worth. However, investing in Tesla or any other company involves a range of factors beyond valuation models, including market sentiment, technological advancements, and execution of strategic plans. Tesla continues to be a pivotal player in the electric vehicle and sustainable energy sectors, with its future performance continuing to shape the ongoing valuation debate.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.