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Tesla’s chain of charging stations have helped crystallize the idea that the company is more than car maker.
Joel Saget/AFP via Getty Images
Tesla
started tweeting from an official Twitter account devoted to artificial intelligence on Wednesday, one designed to highlight how the EV maker’s AI efforts can help the company in the future. It’s also a reason to sell the stock.
Tesla’s shares have soared this year, but they’re also exceptionally volatile. The stock has ranged from about $102 to $315 over the past year. The $213 gap is more than 100% of the average closing price over that span. The same calculation for
Apple
(AAPL) yields about 40% of the average price.
With Tesla, it’s often easy, or easier, to see why the stock is moving up or down. It’s not always simple, though, to understand why it moves so much for the given reason. Consider the recent run. Coming into Thursday trading, Tesla shares are up about 42% since May 25. Two things happened that day. First,
Nvidia
(NVDA) stock soared 24% after reporting its AI-related business was doing much better than anyone expected. Then, Tesla and
Ford Motor
(F) announced a deal allowing Ford drivers to use Tesla’s charging stations.
Both events, like the new @Tesla_AI Twitter account, crystallized the idea that Tesla is more than just a car company, something key for Tesla valuation. Tesla, after all, is worth about three Toyota Motors (TM), despite selling a fraction of the vehicles. In addition to EVs, Elon Musk’s car company owns its own dealership, has a chain of charging stations, offers AI-developed software to help cars drive themselves, and sells solar roofs, utility-scale battery storage products, and even car insurance.
Given Nvidia’s 40% rise since its blowout quarterly report, excitement over AI is likely responsible for much of Tesla’s gains. That makes sense, but there are limits. Tesla shares now trade for about 77 times 2023 estimated earnings, up from 25 times when Barron’s wrote positively about the stock early this year. Simply put, the AI frenzy has made the shares a little pricey for our tastes.
Wall Street is starting to see things our way. Tesla’s recent run has driven two downgrades from analysts over the past two days. Both Morgan Stanley and Barclays took their ratings to Equal Weight from Overweight. Both brokers cited the AI-related hype that had inflated the stock’s valuation.
There are still car-related factors to worry about too, specifically Tesla’s second-quarter sales, which are due to be reported in early July. Wall Street expects roughly 445,000 units shipped during the three months ended on June 30, a record and up from about 423,000 vehicles sold in the first quarter. If Tesla can top those forecasts, the stock could rise further. Miss, and watch out.
That makes this is as good a time as any to sell a little bit of Tesla. Barron’s recommended buying the stock on Jan. 6, just after it closed at $113.06. Wednesday, shares closed at $259.46, up almost 130% from the pick level. We aren’t giving up on shares. Just using volatility, hopefully, to our advantage. Nor are we worried about foregoing a little profit. When a stock doubles, after all, an investor can sell half their stake and be left with the value of the original position, with some profits banked if things go sideways.
With a stock like Tesla, we consider that a win-win.
Write to Al Root at allen.root@dowjones.com
