Tesla: The Bear Case for a Crash

Comprehensive Financial Analysis by Golden Coast Consultants

Executive Summary

Tesla Inc. ($TSLA), the $800 billion electric vehicle (EV) manufacturer headquartered in Austin, Texas, has become synonymous with the rise of clean energy and sustainable transportation. From its humble beginnings, Tesla has grown into a global force in the EV industry, bolstered by Elon Musk leadership, groundbreaking innovation, and investor enthusiasm. In 2021, the company achieved a peak market capitalization of $1 trillion, cementing its place as a market darling. However, Tesla’s stock price has been highly volatile, dropping to $101 in 2022, before rebounding to $250 per share as of today (Oct 2,2024). Despite its recovery, Tesla’s stock price continues to be grossly overvalued relative to its financial fundamentals.

This financial white paper breaks down Tesla’s key valuation metrics, financial performance, 10Q, and broader market risks to make a compelling case the stock will most likely crash again. Our analysis suggests that Tesla’s stock price could decline by as much as -50%, presenting an opportunity as well as concerns for the overall market.

Valuation Concerns: An Overextended Stock

Tesla’s valuation metrics reveal that the company’s stock price is not only unjustified by its financial fundamentals, but also dangerously inflated. Despite the company’s prominence in the EV market, its high multiples point to unrealistic growth expectations, excessive investor optimism, and an overvaluation that cannot be ignored.

Many will argue that Tesla’s recent surge in share price makes any prediction of a significant decline seem foolish. However, as with many bubbles throughout history, this pattern is nothing new. Tesla, infamous for burning short sellers and defying bearish sentiment, seems unstoppable to many even foolish. Yet, today’s numbers bring to mind the famous line from The Big Short:

“Everyone is wrong.”

1. Price-to-Earnings (P/E) Ratio

Tesla’s current P/E ratio of 70 is far higher than the S&P 500 average of 20-25, signifying that investors are paying a premium far in excess of the company’s earnings. What’s even more concerning is the forward P/E ratio of 83, indicating that earnings are expected to decline in the coming quarters.