One-month surge of nearly 50%, can Tesla's strong rebound continue?

In the past month, Tesla's stock has risen nearly 50%. Can this growth be sustained? How should we value Tesla?

There are many analyses in the market.

Is Tesla an AI stock?

Some people think that Tesla is riding the wave of AI. For example, Adam Jonas, a Wall Street analyst at Morgan Stanley who has long been considered the most bullish on Tesla, said:

We believe that the market wants to believe that Tesla is an AI brand first and an automotive company second.

Data shows that since the AI boom sparked by ChatGPT at the end of last year, retail investors' enthusiasm and investment in Tesla have been highly synchronized with AI concept stocks, and the investment amount has even exceeded that of AI concept stocks.

Have robot taxis promised Tesla a high valuation?

Some people interpret it from the perspective of autonomous driving.

Tom Narayan, an analyst at the Royal Bank of Canada, published a report last week that used a new valuation method. This method does not value Tesla's main business, the automotive manufacturing business, but values the promise Tesla made of "robot taxis" - he believes that autonomous driving cars may one day replace some cars. This valuation method is not the first time someone has proposed it, but it is attracting new attention.

According to Narayan's valuation method, Tesla's target market value is expected to exceed $1 trillion, of which the valuation of the automotive business (Tesla's main business now) is only about $900 million, and the valuation of fully automatic driving is as high as $2.4 billion, and the future "robot taxi" business is valued at $7.3 billion.

Those who place their hopes on Tesla's robot taxis today need to have faith in Tesla, because the technology is still in the experimental stage, and Tesla is not even one of the most prominent testers. Although Tesla has talked about robot taxis, Alphabet's Waymo and General Motors' Cruise have already begun operating their fleets in cities such as San Francisco and Phoenix.

Is FSD the key to boosting stock prices?

If we look at it from another perspective, many investors are confident in Tesla because of the expansion of its existing driver assistance package, the so-called Full Self-Driving (FSD). This software provides investors with another reason to view it as an AI company. Tesla now charges $15,000 for FSD, but since the product is still in the testing phase, its revenue is not included in revenue. However, with this technology finally taking a big step towards widespread promotion in the fourth quarter of last year, more investors believe that this will boost Tesla's stock price.

Nevertheless, even if FSD's performance turns around, it is problematic to give Tesla a high valuation solely for this reason. Historically, cutting-edge technology in the automotive industry has only received a sales premium for a limited time before competitors catch up. We have no reason to believe that FSD will be any different. It allows drivers to take their hands off the steering wheel, but they cannot take their eyes off the road, making it difficult to achieve true "autonomous driving". Moreover, many large automakers have already released or are about to release similar technologies.

Did General Motors and Ford Motor joining Tesla's charging network contribute to the surge in stock prices?

Putting AI aside, the recent rebound coincided with Ford Motor and General Motors' decision to use Tesla's supercharging network.

These deals should help Tesla get better returns from its fixed assets, but given the huge investments in rapidly growing independent charging network companies like EVgo, investors have never really been fond of this type of business.

It seems disproportionate to see the huge profit potential of Tesla's charging business just because of these deals.

Can Tesla's strong rebound be sustained?

All of these clues can be interwoven to depict Tesla as a technology ecosystem with multiple sources of revenue, rather than just an automaker. Wedbush Securities analyst Dan Ives believes that Tesla is in an "AWS moment," similar to when Amazon launched its high-profit, more eye-catching AWS cloud business and integrated all of its businesses, widely attracting investors and boosting stock prices.

However, some analysts believe that this analogy is fundamentally inaccurate. Tesla does have some side businesses in charging and other areas, but in the foreseeable future, there seems to be nothing that can generate economies of scale like Tesla's cars and create the next cash cow.

Regarding the recent surge, Wall Street still has more pragmatic explanations. Battle Road Research analyst Ben Rose believes that the rebound began with Tesla's appointment of a new CEO from Twitter, alleviating concerns that he was distracted by his purchase of Twitter last year.

In addition, Tesla updated its website this month to show that all of its vehicles are eligible for full tax credits from the US government. Previously, most of its models only received half of the tax credit. This change may reflect adjustments in the supply chain and may help the company maintain growth without further price cuts or profit reductions. If Tesla's profits in the second quarter show signs of stabilization, analysts may begin to raise their target prices, which have been lowered over the past six months or so.

When analyzing this popular stock, the market often places more emphasis on futuristic, science fiction-like technologies than on fundamentals, which is the main reason for the market's varied predictions for Tesla.

However, the second-quarter earnings report to be released next month may bring the market back to fundamentals. Whether the financial report is good or bad, it may remind investors that Tesla is still a company that relies heavily on car sales and will continue to do so for many years to come.