Tesla (TSLA): Assessing Valuation After Fed Rate Cut Signals and Major Robotaxi, AI Expansion News

If you are watching Tesla (TSLA), this week’s surge might have grabbed your attention. Shares jumped over 6% after Federal Reserve Chair Jerome Powell signaled a possible turn to rate cuts, lighting a spark across growth stocks. But it is not just macro news fueling the rally. Tesla also announced the upcoming public launch of its Robotaxi service in Austin, a major step into driverless ride-hailing. In addition, Tesla’s expanding ambitions, such as applying to become a U.K. power supplier and rolling out AI partnerships for its Chinese lineup, have contributed to the excitement among investors.

Looking at the bigger picture, Tesla has experienced plenty of ups and downs this year. The stock’s momentum faded through the spring, but it is now up nearly 60% over the past year and optimism is returning as the company finds new ways to diversify. Recent product launches, price adjustments, including a higher sticker price for the top-end Cybertruck, and innovations like advancements in Full Self-Driving technology have contributed to shifting sentiment. There are still challenges from rising competition and pressures on margins, but the past month’s positive swing suggests that investors may see more growth potential in Tesla’s latest initiatives.

So the question now is, does this rebound mean Tesla is undervalued, or is the market simply pricing in a lot of future growth already?

Most Popular Narrative: 2.2% Overvalued

According to the narrative by Panayiotis, Tesla is currently trading slightly above its estimated fair value, suggesting the stock is modestly overvalued based on retail investor projections and the provided discount rate.

Based on current projections and Tesla's ambitious plans, revenue in five years (2029) could potentially reach around $150 billion. This estimate considers several factors: growth in EV sales, expansion into new markets, energy products, autonomous driving and robotics, regulatory credits, and technological innovation. Of course, these projections are subject to various risks and uncertainties, including competition, supply chain issues, and regulatory changes.

What sets this valuation apart? It hinges on aggressive assumptions for revenue increases and future margin improvements, in addition to a premium multiple for expected innovation. Curious how much optimism is built in? The true backbone of this price target lies in forward-thinking financial forecasts that go beyond the ordinary auto industry playbook.

Result: Fair Value of $332.71 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, unforeseen regulatory hurdles or intensified competition could quickly challenge these projections and shift investor sentiment away from Tesla's bullish outlook.

Find out about the key risks to this Tesla narrative.

Another View: Discounted Cash Flow

To challenge the prior narrative-based valuation, our DCF model paints a very different picture. Rather than suggesting optimism, this method finds Tesla notably overvalued based on projected future cash flows. Could the market be too confident?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Tesla for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Tesla Narrative

If these views do not quite align with your perspective, or you want to dig into the numbers yourself, you have the freedom to craft your own Tesla story in just a few minutes. So why not do it your way?

A great starting point for your Tesla research is our analysis highlighting 1 key reward and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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