Tesla shares moved lower in early Wednesday trading, and remain firmly in the red following a muted second quarter earnings report late last month, but one Wall Street analyst continues to argue that the recent moves aren't reflecting the automaker's longer-term value.
Tesla (TSLA) shares have shed nearly $140 billion in value so far this year, with the stock down more than 16% on the back of narrowing profit margins, slower EV sales and a broader pivot toward autonomous driving and AI-related technology over traditional carmaking.
However, while investors have fled the stock in droves this year largely as a result of the switch in focus outlined by Chief Executive Elon Musk this spring, one Wall Street analyst sees it as the key to unlocking billions of value in Tesla stock.
'We continue to argue that Tesla's AI efforts are significant to the stock – including at the current price," said Truist Securities analyst William Stein, who reiterated his hold rating and $215 price target on the group despite its recent share slump.
Stein argues that while investors "know that the majority of Tesla's current revenue and profit come from auto sales and, increasingly, energy capture and storage," that side of the business represents only around a third of its value.
Tesla value lies in AI
"Based on our current estimates, which we do not see as particularly conservative, we view these businesses as worth $267 billion, or $75 per share,' Stein said. "That's only 35% of our Tesla price target."
Tesla posted a bottom line of 52 cents a share, a 43% slump from the year-earlier period, missing Wall Street's forecasts. Revenue rose 3% to $25.5 billion, thanks in part to a stronger-than-expected delivery tally.
That didn't translate into wider profit margins, however. Tesla's gross margin of 14.6% not only missed Wall Street's consensus forecast but was the lowest overall figure in at least five years.
Related: Top analyst defends Tesla stock price target despite earnings slump
Tesla also deployed around 9.4 gigawatt hours of energy-storage products over the three months ended in June, a figure more than double the record tally of 4.1 GWh reported over the previous quarter.
Stein argues that the remaining value comes from Tesla's advanced driver-assistance unit, which includes its self-driving software, its robotics division and its AI training computing services, including its Dojo supercomputer.
Musk wants to compete with Nvidia
Musk himself touted the profit potential of AI technologies, particularly with respect to the group's ambition to offer self-driving software to its near 7 million global EV fleet, adding that capital spending would likely rise to around $10 billion this year as a result.
"We are going to double down on Dojo and we do see a path to being competitive with Nvidia with Dojo," Musk told investors last month. "And I think we kind of have no choice because the demand for Nvidia is so high and it's obviously their obligation essentially to raise the price of [graphics-processing units] to whatever the market will bear, which is very high."
Related: Analysts race to reset Tesla stock price targets after earnings
"So I think we've really got to make Dojo work and we will," Musk added.
Musk also doubled down on the group's new tech future, telling analysts on the post-earnings conference call that "the world is headed for a fully electrified transport" that includes not just cars but aircraft and boats.
More Tesla:
- Tesla has a problem attracting 'normal' EV buyers to its cars
- Top analyst defends Tesla stock price target despite earnings slump
- Analyst resets Tesla stock price target on full-service driving future
"Anyone who doesn't believe that Tesla would solve vehicle autonomy should not hold Tesla stock," Musk said. "They should sell their Tesla stock."
To that end, Stein at Truist agrees, saying Tesla's AI projects are "significant to the stock."
"So, we argue investors should spend some time investigating whether Tesla's AI project with the most history, that's generating current revenue, and is being used in the real world already, actually works," he added.
Tesla shares were marked 2.8% lower in early Wednesday trading to change hands at $201.72 each, a move that leaves the stock down more than 20% over the past month.
Related: Veteran fund manager sees world of pain coming for stocks
