We believe that the importance of fundamentals to Tesla investors has taken a backseat, with autonomous driving and AI narratives taking center stage… However, the belief that fundamentals are unimportant is only temporary – until one day, fundamentals will matter again.
$Tesla (TSLA.US)$is simultaneously shaping two narratives—“future growth driven by AI” and “the current slowdown in the automotive business.” The former fuels stock prices, while the latter erodes profitability.
On October 17, according to Hard AI News, Barclays analyst Dan Levy stated in his latest research report that Tesla is caught between 'two narratives': on one side, Musk's renewed involvement (a new compensation package, a $1 billion stock purchase) is accelerating the AI/self-driving narrative; on the other, weak fundamentals suggest third-quarter deliveries may have peaked for the time being.
The bank’s analysts warned that the strong performance in Q3 was actually due to 'pull-forward demand' ahead of the expiration of EV tax credits, which is expected to mark a sales peak for an extended period. Moreover, considering Tesla's stock has surged 32% since early September (while the S&P 500 rose only 4% during the same period), positive news may already be fully priced in.
The bank explicitly noted in its report: 'We believe that fundamentals have taken a backseat for Tesla investors, with the self-driving and AI narrative now taking center stage... However, believing that fundamentals don’t matter is only temporary — until one day, they become important again. Tesla's core automotive business remains critical to funding future autonomous driving and AI growth, including the capital-intensive scaling of the Robotaxi initiative.'
Barclays maintained a 'Neutral rating (Equal Weight)' on Tesla, raising its target price by 27% from $275 to $350, but this still implies a potential downside of nearly 20% compared to the current stock price of $435.
Musk’s 'return to Tesla' has ignited sentiment, with the AI narrative dominating stock performance.
Barclays believes that Tesla's upward momentum stems from the "story" rather than the numbers. Musk's recent introduction of a new 2025 compensation plan, coupled with his personal purchase of $1 billion worth of Tesla stock, has been interpreted by the market as a signal that he will "refocus the company."
Meanwhile, narratives around Robotaxi (autonomous taxis) and the humanoid robot "Optimus" have gained renewed momentum, becoming key terms pursued by investors. Despite limited disclosure by the company regarding these two AI-related businesses, the market continues to push up valuations based on their future potential.
The bank's analysts noted that Tesla is attracting capital with "Mars-shot milestones"—grand visions that remain far from profitability.
Peaking sales and profit pressure: Reality is bringing down the "myth."
Behind the fervor of the capital markets, Tesla's operational reality is cooling.
Barclays expects the company’s third-quarter earnings per share (EPS) to be approximately $0.60, higher than the market consensus of $0.52, but this has already been priced into the stock. The key risk lies in the potential for both sales and profits to decline simultaneously starting in the fourth quarter.
Sales may have peaked: Deliveries reached 497,000 units in the third quarter, marking a阶段性 high point. With the expiration of the $7,500 U.S. electric vehicle tax credit, fourth-quarter sales are projected to drop to 425,000 units, resulting in full-year deliveries of approximately 1.64 million units, an 8% year-over-year decline and the second consecutive year of contraction.
New models lack surprises: The newly launched "lower-priced" Model 3/Y are not entirely new models but simplified versions of existing ones (with reduced configurations and lower battery capacities). Analysts pointed out that these models may primarily "cannibalize" sales of existing high-end models, offering limited incremental demand.
"We are disappointed with the new car launch, as we had hoped to see more product diversity… Investor feedback on the release has been generally negative, with many expecting further clarification on profitability during the earnings call."
Continued decline in profitability: Barclays forecasts Tesla’s EPS for 2025 and 2026 to be $1.61 and $1.48, respectively, both below market expectations ($1.75 and $2.46). Gross margins are expected to remain under pressure, declining from 29% in 2022 to approximately 16% by 2025.
The Logic Behind the Increase in Target Price
Tesla’s current market capitalization stands at $1.45 trillion, with an enterprise value-to-EBITDA ratio as high as 125.8 times (2025 forecast), far exceeding that of traditional automakers. This valuation is entirely based on optimistic expectations regarding the prospects of autonomous driving and artificial intelligence, rather than the company's current fundamentals.
Despite weak fundamentals, Barclays has raised Tesla's target price by 27% to $350. However, this primarily reflects a valuation adjustment for AI/autonomous driving opportunities (with the base-case P/E ratio increasing from 41x to 65x), rather than recognition of improved fundamentals. Additionally, with the current share price at $435, there remains an estimated downside potential of approximately 20%.
Furthermore, Barclays holds a neutral to slightly negative stance ahead of and following the release of the Q3 earnings report. The reasons are as follows: the significant rise in share price has already fully priced in earnings expectations, while the earnings report may serve as a reminder to the market of the weak fundamental reality post-Q3. Nevertheless, the bank also emphasized that any pullback in share price is likely to be temporary, as the shareholders' meeting on November 6 could reignite market enthusiasm for growth narratives.
Editor/Jeffy
