There have been few hotter stocks this year than Tesla.
The electric car manufacturer helmed by ambitious CEO Elon Musk is up about 240% YTD, and now sits at $121.
But Bank of America Merrill Lynch’s John Lovallo II and John Murphy are holding firm to their original $39.
In a note this morning, they write that there are “300,000 reasons” to be sceptical of Tesla’s climb — that’s how many units the company’s current compound annual growth rate implies would be sold in 2020:
… we estimate that a $120 share price implies over 321K vehicle sales in 2020, which is a full 300K units higher than our current 2013e and would represent a 7-year CAGR of 48%. We also note that this analysis assumes TSLA can achieve EBIT margins of about 12.5% in 2020, which would be over 380bps better than the 2012 average of BMW, Mercedes, Audi, Bentley, and Porsche and 400bps better than our European analyst’s forecasts for this group in 2015.
A 48% growth rate has never been achieved by any other auto manufacturer ever:
We analysed the lifecycle of over 130 vehicles categorized as luxury by Ward’s Auto, the result of which indicate that approx. 70% reach peak volume within the first 8 quarters of launch. In other words, if Tesla’s vehicles follow a pattern similar to the industry norm, volumes could begin levelling off within the next year, rather than growing into perpetuity as the current share price would suggest.
They conclude: “While nothing is impossible, particularly with Elon Musk at the helm, we believe these assumptions warrant a healthy degree of scepticism.”
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