Bullish Tesla stock investors still support the leadership of CEO Elon Musk — but cracks are starting to form as Tesla distracts itself with crises of its own making. Tesla stock is down more than 27% year to date and more than 57% below its all-time high in 2021 near 415.
"At some point I would say Elon was irreplaceable at Tesla," Simon Erickson, founder and CEO of 7investing and longtime Tesla bull, tells Investor's Business Daily's "Investing with IBD" podcast. "I'm not sure I would call him irreplaceable at this point."
Tesla stock has only itself to blame for recent missteps. Tesla's biggest and most recent headlines come not from new models under development or advances in its self-driving technology, but from a dust-up around Elon Musk's pay package. Today, Tesla fired back at a report from proxy advisory firm Glass Lewis advising investors to vote against Musk's 2018 pay package. If approved, the package gives Musk compensation worth around $58 billion.
Is Tesla Stock Worth More Than Manufacturing?
In fact, Erickson says that using only a discounted cash flow model for Tesla, the automaker has a value of 104, far below even its current stock price. Discounted cash flow models try to project future values based on estimates. In this case it serves as the basis for Erickson's valuation for the automaker.
His projection factors in automotive revenue, new models, the cost of production and overhead, among other factors. But could Tesla be valued differently when considering its other ventures and ambitions outside of the automotive space?
Audio Version Of Podcast Episode
However, Erickson says Tesla's bull case comes from its software-as-a-service style subscription models. That's a source of recurring revenue that's unique in the field of auto manufacturing. "Elon's thinking of these not as vehicles just to drive people around where he collects money up front, but vehicles to embed software in," said Erickson.
Erickson says full self driving, when realized, will add another 100 to the share price alone, alongside the Robotaxi network. Robotaxis, when realized, will add 445 more per share to his calculated valuation, bringing Erickson's target price for Tesla stock to 645.
Erickson says Tesla is more difficult to value compared to other businesses. "It's fairly easy to model a company like Target, Starbucks or Chipotle," he said. "You kind of know what the traffic looks like, you know what the pricing looks like."
Erickson says predictability does not translate into healthy returns, with earnings that tend to come in close or near analyst expectations. "You get used to what you see, and that's why you never see those companies just knock it out of the park at all times."
Musk Remains A Visionary ... For Now
Still, distractions and missteps have weakened investor confidence in Tesla, Erickson acknowledges. The current market's focus on AI has heightened questions among even bullish investors over Tesla stock's leadership. Musk may not necessarily be it, says Erickson. "Is Tesla winning the race on the AI front? And is Elon necessarily the right guy that has to be in charge?" he said.
He says Tesla needs a visionary at the helm as AI development plays an increasingly bigger part in driving cutting-edge companies — and as shareholders zero in on AI news. Erickson cites management shake-ups at other cutting-edge companies like OpenAI.
But despite Musk's missteps, Erickson says Musk may be the best person for the job — for now. He cites Musk's "hyperfocus" in fixing problems and navigating difficult situations, including navigating the company past a potential bankruptcy early in the automaker's history.
"I would be voting in favor of keeping him as CEO, as a Tesla shareholder," he said.
Tesla Stock's Track Record
But while Elon Musk and Tesla stock have a track record of pulling themselves back from the brink, the stock is at a decidedly different point now than it was in the Covid boom cycle. But from both perspectives, it's worth keeping in mind the investor's disclosure: Past performance never guarantees future returns.
Tesla stock continues to dither around 175 per share, down from its short-term high of 198 shortly after earnings were released on April 23. The stock is showing signs of consolidation, with lower-than-usual volume, although the move has not yet been acknowledged by MarketSurge pattern recognition. Tesla shares have remained below their 200-day moving average since the start of 2024.
The stock skyrocketed in 2019 and 2020, aided in part by eye-popping profit margins and the launch of the then-new Model Y compact SUV. But the automaker has lost nearly $330 billion in market value this year alone.
The automaker currently ranks No. 8 in the Auto Manufacturers Group and holds an abysmal composite rating of 39 out of a possible 99, according to IBD Research.
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