First coverage, first bearish view! HSBC's heavyweight research report on Tesla

In recent days, due to weak demand, the bearish sentiment has gradually spread across the global electric vehicle market, with Tesla as the leading company bearing the brunt.

In a report released on November 9th, HSBC, for the first time, gave Tesla a "sell" rating with a target price of $146, representing a 32% drop from the current stock price. Tesla's stock price fell nearly 5.5% in response, closing at the end of the day.

HSBC explained the reason for the downgrade in the report: "We believe that the delivery schedule may be longer than the time reflected by the market and valuation, so we have lowered the rating."

It is worth noting that HSBC's "sell" rating was given when there were more bulls than bears among Tesla analysts. Among the 46 analysts surveyed by FactSet, 20 gave Tesla's stock a buy or equivalent rating, 19 gave a hold or equivalent rating, and only seven gave a sell or equivalent rating.

Specifically, HSBC's report on the downgrade of Tesla's rating mainly includes the following points.

Difficulties in achieving delivery targets

Delivery time is the most concerning issue for HSBC, and they believe that Tesla will not be able to achieve its goal of delivering 20 million vehicles and 1TWh of energy storage by 2030.

The latest third-quarter earnings report released in October showed that Tesla's global electric vehicle deliveries in the third quarter exceeded 435,000 units, a year-on-year increase of about 27%. The cumulative global deliveries in the first three quarters exceeded 1.324 million units, surpassing the total deliveries for 2022. Tesla also stated that its delivery target for 2023 is approximately 1.8 million units.

According to Tesla's previous statement, it aims to achieve 20 million deliveries by 2030. HSBC believes that its credibility is questionable and considers the possibility of not meeting the delivery target as the main reason for "selling" Tesla:

Our caution stems from the timing of its various ideas and the uncertainty of commercialization. We believe that Tesla's prospects and ideas have considerable potential, but we believe that the time required may be longer than what is reflected by the market and valuation. Therefore, we give a "sell" rating.

HSBC predicts that by 2030, Tesla's unit sales will increase to approximately 6 million vehicles, far below its annual target of 20 million vehicles.

On the other hand, Tesla may also fail to achieve its goals in power reserves and investment plans. It is speculated that Tesla's goal is to achieve 1TWh of energy storage by 2030. If this goal is achieved, according to BNEF's market forecast, Tesla's storage capacity will account for 71% of the total storage market in 2030.

HSBC says that this goal is almost impossible to achieve:

Although there is no strict timetable for the overall plan, it is clear that the investment required by all parties (not just Tesla) is very high. For example, even if the entire Tesla vehicle matrix is included in the storage resources, the current battery size can only increase the storage capacity by a maximum of 2TWh by 2030.

Potential Risks from Non-Automotive Businesses

Currently, a large part of Tesla's current valuation is related to the potential of projects such as FSD, Dojo, and Optimus. Musk has also stated that Tesla's main growth pillar will go beyond the automotive business. Therefore, significant delays or developments in these businesses that indicate a lack of technological and regulatory feasibility could pose significant risks to Tesla.

Firstly, Tesla's valuation is largely determined by the prospects of FSD (Full Self-Driving), but HSBC is not optimistic about the future of Tesla's FSD. There are four main reasons:

• The unknown time it will take for FSD to truly land (such as reaching Level 5-1);
• Whether it is reasonable to raise the price of the complete FSD software package to 100,000-200,000 yuan;
• The erosion of the market scale by FSD cars;
• FSD means higher capital risk for Tesla as the theoretical responsibility for accidents lies with the manufacturer.

Secondly, in the long term, the Dojo supercomputer business will also account for a major proportion of Tesla's revenue sources. HSBC points out that if artificial intelligence computing is the core technology driving the next generation of disruptive technology applications and services globally, then "Dojo services" could become Tesla's main source of income in the future.

One influencing factor is the potential threat of quantum computing. The report predicts:

If quantum computing and Dojo develop at the same time, when Dojo becomes a third-party product, quantum computing may become a potential disruptor for artificial intelligence computing services like Dojo.

Finally, the Optimus robot business, which is still in the prototype stage, is also seen by Musk as a "major driver" of Tesla's long-term valuation. However, HSBC believes that its commercialization will still take time.

Currently, in the industrial field, the main obstacle to the commercialization of humanoid robots is the inability to meet customer expectations in terms of functionality and intelligence.

Although Tesla's Optimus robot has cost advantages and a foundation in autonomous driving technology training, HSBC believes that: Dolphin Research believes that humanoid robots need to reach the level of mature alternatives in tasks such as industrial robotic arms, AGVs, and home cleaning robots before the market can take off.

Based on the discounted cash flow (DCF) and multiple valuation method, HSBC's results are rather pessimistic: in the valuation of Tesla's "discounted cash flow," almost half of it comes from businesses that will not generate revenue and profit before 2028e, including non-automotive businesses such as FSD, Dojo, and Optimus.

Musk is both an "asset" and a "risk"

It is worth noting that HSBC considers Musk himself as one of the factors influencing Tesla's valuation, as HSBC believes: Musk himself is both an "asset" and a "risk".

Because Musk's global reputation brings more influence and visibility to the company than the money spent on marketing and advertising, it can also be seen as a "real income" on the income statement, as well as an "independent" risk for the company.

The premium in Tesla's valuation is justified

However, HSBC acknowledges Tesla's "leading position" in the industry:

Tesla is not just an expensive car company; its goal is to be an innovator, which is the basis of its valuation.

Compared to traditional automakers, Tesla is in a leading position in terms of costs, and HSBC believes that traditional automakers are no longer growth-oriented companies, as their user base has reached saturation.

Therefore, HSBC believes that the current premium in Tesla's valuation is somewhat justified:

Tesla faces fewer challenges than existing automakers and should therefore receive a premium.

Looking at the historical stock price trend, every jump in stock price is mainly driven by Tesla's innovative initiatives. Therefore, HSBC believes that the market's expectation for the "next big event" will continue to support Tesla's current stock price level, provided that the automotive business performs well and can support Tesla in turning ideas into successful products.

We believe that as long as the "core" business performs well, this hope will not be shattered.