Is There More Upside In Tesla Stock As Competition Heats Up?

  • Stock Market Analysis
  • Editors Pick

Looking at the performance of Tesla (NASDAQ: TSLA ) shares, it’s no secret that investors don’t see a major competitive threat for the electric-vehicle company in the near-term. Even after incorporating the recent weakness that marred high-growth tech companies this year, Tesla is still one of the top-performing companies listed on the S&P 500 during the past 12 months.

Tesla investors are excited to see that the world’s most-valuable EV company is well on track to meet its production targets. The company told investors early this month that it delivered 184,800 cars worldwide in the first three months of 2021, up from 180,570 in the fourth quarter.

“We are encouraged by the strong reception of the Model Y in China and are quickly progressing to full production capacity,” the company said. The new Model S and Model X have also been “exceptionally well received,” Tesla said, adding that it’s in the early stages of ramping production.

As the California-based company continues its growth journey, some serious competitors are also entering the market. While traditional auto-makers, like Volkswagen (OTC: VWAGY ) and General Motors (NYSE: GM ) accelerate their EV efforts, smaller Chinese upstarts like Nio (NYSE: NIO ) and Xpeng (NYSE: XPEV ) are also vying for tech-savvy customers.

VW this week launched its new Audi Q4 e-tron model to compete with Tesla in the fast-growing market of compact crossover SUVs. Pricing for the vehicle will start at 41,900 euros ($50,200) in Germany, which will offer as much as 520 kilometres (323 miles) of battery range.

The Audi’s EV model is among a dozen vehicles the German auto-maker has planned, including VW’s ID.4 and an electric version of the Porsche Macan. VW is targeting to sell roughly 600,000 purely battery-powered cars this year. The Q4 e-tron is based on VW’s architecture for mass-market electric cars, called MEB which, according to auto analysts, stacks up well against Tesla on a number of key aspects. 

$150 Price Target

Volkswagen should keep getting more credit for its battery-powered car strategy that could lead the company to surpass Tesla in electric-vehicle sales as soon as next year, according to a note by Deutsche Bank.

If the market were to apply multiples similar to Tesla and Nio to VW’s battery-electric vehicle business, it would be worth about 195 billion euros, more than the entire company is worth now, analysts led by Tim Rokossa wrote in a report last month. They lifted their price target for VW shares by 46% to 270 euros.

As the competition heats up, some analysts are questioning the highly optimistic rating on Tesla stock. The company’s valuation of around $700 billion is close to the total size of the U.S. and European automotive markets, even though it’s only a “minor player” overall, said Roth Capital’s analysts Craig Irwin, who thinks Tesla stock is worth $150.

Tesla Weekly Chart.

Irwin told CNBC this month:

“So for me, I see this as a market dislocation. I see this as something avoiding analysis of the fundamentals and I think there’s room for many successful companies in the market. People are just assuming that Tesla has no competition when they put this kind of lofty valuation on the company.”

Bottom Line

Despite competitive threats, Tesla continues to be the most favored EV stock, with analysts’ consensus price target of around $700 a share. That means investors are comfortable with the company’s performance and its future outlook. That said, it will certainly become harder for analysts to justify further upside in Tesla shares if new entrants succeed in attracting buyers and challenging the company’s dominance. That’s perhaps the reason that Tesla stock has underperformed the overall market this year, after remarkable gains in 2020.

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