Tesla stock 'egregiously overvalued,' says analyst

Investors on Wall Street are closely monitoring the performance of Tesla's stock in the wake of numerous downgrades received by the electric vehicle (EV) frontrunner. Craig Irwin, a Senior Research Analyst at ROTH Capital Partners, shares his opinion on why he thinks Tesla's stock is "extremely overpriced."

RACHELLE AKUFFO: So, talking about another creator, Volvo recently declared that it would be the most recent automobile business to become a part of Tesla's charging network. This decision comes after Ford, General Motors, and Rivian also hopped on board. However, the financial market is closely monitoring the electric vehicle pioneer, especially after receiving some negative predictions.

The recent downgrades of Tesla's stock raise concerns about the company's current worth and the potential implications of these partnerships in the long run. We invited Craig Irwin, the senior research analyst at ROTH Capital Partners, to share his perspective. Welcome to the show, Craig. Can you provide some insight into the mixed signals we're receiving, with downgrades happening alongside increased price targets?

CRAIG IRWIN: You see, the stock has had a remarkable performance this year. It had a difficult end to the previous year, but they managed to boost interest from sellers by lowering prices. Additionally, the wide adoption of ACS, a charging protocol standard connector, by major car manufacturers has contributed to their success.

So they have experienced some significant successes and the company's value has skyrocketed like a flying toy. Going from nearly $100 to a negative $250 and beyond is a substantial leap. Consequently, individuals seem to be responding impulsively. Personally, I have always held a pessimistic view in the long term. It is a remarkable company that has played a major role in revolutionizing transportation. However, with the introduction of 100 new electric vehicles to the market, esteemed companies such as Ford and General Motors, there is a considerable presence of established players offering compelling vehicles. This will likely result in increased competition for Tesla, making it more difficult for them to sustain the same level of growth and profit margins they have achieved so far.

RACHELLE AKUFFO: And well, for the time being, Tesla still remains on top compared to other electric vehicle manufacturers. However, we should consider the endurance of the demand aspect. As you previously stated, a significant number of individuals are entering the competition with potentially more affordable vehicle options.

CRAIG IRWIN: Absolutely. It has been demonstrated that demand is highly influenced by pricing. Tesla has reduced prices on specific models by up to 30%. As a result, consumers actively react to significant price alterations. Electric vehicles (EVs) have traditionally been costly due to expensive batteries. However, there have been significant advancements in reducing battery costs. Unfortunately, the enhancements in capabilities have not progressed as rapidly as anticipated.

As time passes in the coming years, it is bound to happen. We will witness a continuous and remarkable increase in the use of electric cars. However, the desire for these vehicles is not strong. In fact, it fluctuates in this current situation, that's why Tesla had to take bold actions and significantly reduce prices.

RACHELLE AKUFFO: So, do you believe that having more partners involved in the expansion of the supercharging network and the associated revenue could strengthen its competitive advantage?

CRAIG IRWIN: Yup, they pretty much control about 80% of the North American market worldwide, and they definitely deserve recognition for that. A significant factor in their triumph has been their impressive supercharger network. On average, Tesla drivers charge about 15% of the distance they travel using DC fast chargers provided by the superchargers. In contrast, other electric vehicle (EV) drivers in North America only make use of about 5%. So, Tesla's network provides its customers with a great sense of reassurance.

Therefore, it is also a magnitude greater than the size of other individuals' networks, specifically private networks. As a result, General Motors, Ford, and other companies are enthusiastically joining in and finalizing these agreements to obtain entry to that network. This development is highly advantageous for them and fosters widespread acceptance. Nonetheless, it remains uncertain how much their clientele will eventually fork out compared to Tesla's customers.

And you know, I believe the Tesla brand could be influenced in some way. It's not going to be exciting to wait in line to recharge your vehicle behind a massive Hummer that will take much longer to charge the battery. So there are advantages and disadvantages to consider. They probably do generate some profit from this, which is great. This is what capitalism is all about, it encourages investment. However, when I evaluate Tesla, I must say it is noticeably overpriced. But wow, what an amazing trailblazer in pushing this industry forward.

RACHELLE AKUFFO: Oh, and while we're discussing innovative breakthroughs, let's delve into the realm of artificial intelligence. We're witnessing a surge in high-stakes endeavors in the AI sphere. For instance, Elon Musk has voiced his intentions of procuring additional chips from NVIDIA to gain a competitive edge in this field. To what extent is this contributing to the excitement surrounding AI? And more importantly, how much of this enthusiasm is justified given the current circumstances?

CRAIG IRWIN: Indeed. The institutional investors tend to approach this information cautiously. They have a different trading approach compared to individual investors. Retail investors significantly contribute to the trading and the movement of the stock. However, the major institutions are well aware that AI's significance to Tesla is only moderate when compared to other factors. Personally, I believe that referring to the self-driving capabilities as "full" is misleading considering the frequency of false stops and strange occurrences while operating these vehicles.

At a rate of approximately 1 to 4 or 5 miles, we contemplate those individuals who are truly responsible for accidents. It is admirable that they are exerting significant effort to advance this technology. However, I believe that others will exercise greater caution when introducing new products to the market. Moreover, Tesla's advancements will likely encourage others to increase their speed. Nonetheless, I believe that Tesla's potential for profit with this artificial intelligence technology is currently rather constrained.

RACHELLE AKUFFO: Considering the uncertainty in the short term versus the uncertainty in the long term, would you classify this as a period of favorable market conditions or a deceptive market condition? How should investors approach this situation?

CRAIG IRWIN: It's definitely not a stock that is undervalued. Perhaps it is more accurate to call it a stock that attracts bullish investors temporarily. Many investors who follow momentum trading strategies are currently involved in this stock and are intelligently selling when the stock is strong, and then buying when it is weak. I don't oppose this type of trading strategy. However, I do believe that there are valid concerns regarding the battery source for Tesla's Model 3, which is their most popular vehicle and whether it will switch from a Chinese supplier. Additionally, competition may have a greater impact on other charging networks compared to Tesla, considering the political stance of Mr. Musk.

Many investors are fully conscious of this and closely observing, you catch my drift? And as this proof surfaces, anticipate substantial instability in the stock. It can rise rapidly, but it can also plummet just as swiftly. We're being careful. We believe it's important for individuals to recognize that this is a considerable likelihood in the upcoming months.

RACHELLE AKUFFO: We will definitely be keeping an eye on that. It's wonderful to have you here. Craig Irwin, a senior research analyst from ROTH Capital Partners, it's nice to see you.

CRAIG IRWIN: Much obliged.