Are Tesla's shares worth US$90 or US$780? Wall Street can't decide

[NEW YORK] For all the headline-making drama surrounding Elon Musk and his brainchild Tesla, investors were rewarded handsomely for their patience this year.

Now that the company is maturing into blue-chip status with its addition to the S&P 500 Index this month, what happens next may boil down to some simple questions: What type of company is Tesla exactly? And how should the stock be valued? Wall Street's answers, however, are wildly different - Goldman Sachs has a price target of US$780, while JPMorgan Chase's is US$90.

"It's whatever people want to believe Elon Musk is touting," hedge fund manager Jim Chanos told Bloomberg TV earlier this month.

Of course, investors who have bought into Mr Musk's ideas have done a lot better with the stock than Mr Chanos, who said he recently reduced the size of a "painful" short position in Tesla that he's held for five years at his firm Kynikos Associates.

The electric vehicle maker has now reported profits for five straight quarters, accompanied by a more than seven-fold increase in its share price this year and a whopping return of almost 18,000 per cent since the 2010 initial public offering.

Investors who believed in Mr Musk's vision to transform the century-old automobile industry and stuck with it through the years had to look past production troubles, delivery missteps, mounting losses, volatile stock moves and an erratic chief executive prone to land himself in trouble with tweets.

Yet as the scrutiny intensifies on the company that will command one of the top weightings in the S&P 500, investors are struggling to make sense of this auto manufacturer that is trading far above the lofty valuations typically enjoyed only by technology companies with vastly different business models.

Tesla's shares currently trade at nearly 1,000 times earnings, compared with a paltry 14 times for General Motors and 53 times for the NYSE Fang+ Index.

Therein lies the dilemma. Is Tesla an automaker? Or is it a technology company? Or is it some sort of an amalgamation of both? The company plans to deliver about half a million cars this year, a 36 per cent jump over last year's levels, but slower than the 50 per cent increase it achieved in 2019.

Wall Street analysts estimate revenue will grow 26 per cent this year, accelerate further in 2021, and then taper off into 2022. Estimates for earnings in 2020 and 2021 have barely budged over the past two years.

The most bullish analysts and investors, however, say that selling cars is only one of Tesla's many potential endeavors. Active exchange-traded fund manager Ark Investment Management, a shareholder and one of the most ardent bulls on the stock, estimates the company's share price will reach US$7,000 by 2024. That calculation assumes Tesla will not only make electric cars much more efficiently than traditional ones with internal combustion engines, but also operate a fully autonomous taxi network.

Right now, Tesla is not only the biggest automaker in the world by market value, it is worth more than GM, Ford Motor, Toyota Motor, Volkswagen and BMW combined, which leads to the question: How exactly are investors valuing this company?

Mr Musk himself said back in May that Tesla's share price was "too high", and earlier this month warned employees that the stock can "get crushed like a souffle under a sledgehammer" if investors at any point conclude that it cannot achieve the profits they are expecting it to deliver in the future. Tesla did not respond to a request to comment for this article.

BLOOMBERG