Tesla: Powerful Narrative vs Weak Fundamentals
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Author: Dong Jing
Source: Hard AI
Tesla is simultaneously playing out two stories—“AI-driven future growth” and “the real slowdown of the auto business.” The former ignites the stock price, while the latter erodes profits.
On October 17, according to Hard AI, Barclays analyst Dan Levy said in the latest research report that Tesla is caught “between two stories”: on the one hand, the acceleration of the AI/autonomous driving narrative driven by Musk’s renewed engagement (new compensation plan, $1 billion stock purchase); on the other hand, the weakness in fundamentals with the possibility that Q3 delivery volume may have peaked for a while.
The bank's analysts warn that the strong Q3 performance was actually “borrowed demand” ahead of the expiry of EV tax credits, and is expected to be the highest sales volume for a considerable period. With Tesla stock up 32% since early September (S&P 500 up only 4% in the same period), the good news is likely already priced in.
The bank said bluntly in the report: “We believe fundamentals have become secondary for Tesla investors, while the autonomous driving and AI narrative takes center stage… However, the belief that fundamentals don’t matter is only temporary—sooner or later, fundamentals will matter again. The core auto business is essential to fund future autonomous driving and AI growth, including the capital-intensive ramp-up of Robotaxi.”
Barclays maintains a “Neutral” (Equal Weight) rating on Tesla, raising the target price from $275 to $350 (up 27%), but this is still nearly 20% below the current stock price of $435.
Musk's "Return to Tesla" Ignites Market Sentiment, AI Narrative Dominates the Stock Price
Barclays believes Tesla’s upward momentum stems from “the story” rather than the numbers. Musk’s recent rollout of a new compensation plan for 2025, along with his personal purchase of $1 billion in Tesla shares, are being interpreted as his “recommitment to the company.”
Meanwhile, the narrative—around Robotaxi (robotaxi) and humanoid robot “Optimus”—is heating up again, becoming keywords chased by investors. Although the company has disclosed little about these AI-related businesses, the market is driving valuations higher based on their potential.
The bank’s analyst said, Tesla is attracting capital with 'Mars-shot milestones'—ambitious visions, but far from profitability.
Sales Peak, Profit Pressure: Reality Lowers the "Myth"
Behind the capital market frenzy, Tesla’s operating reality is cooling down.
Barclays expects Q3 EPS at about $0.60, higher than the market forecast of $0.52, but this has already been priced into the stock. The key risk is that starting in Q4, both sales and profits may decline together.
Sales may have peaked: 497,000 units delivered in Q3, a stage high. As the US $7500 EV tax credit expires, Q4 deliveries are expected to fall to 425,000 units, with full-year deliveries at about 1.64 million, down 8% year on year, the second consecutive year of decline.
New models lack surprises: The newly launched “lower-priced” Model 3/Y are not all-new models, but simply pared-down versions of existing ones (reduced features and battery capacity). Analysts note that these models may mainly ‘cannibalize’ sales of current high-end models, contributing limited incremental demand.
"We are disappointed with the new model launches, originally hoping for greater product variety… Investor response to the release has been broadly negative, with many hoping for more clarification on profitability in the earnings call."
Profitability continues to fall: Barclays expects Tesla's 2025 and 2026 EPS to be $1.61 and $1.48 respectively, both below market expectations ($1.75 and $2.46). Gross margin is expected to remain under pressure, falling from 29% in 2022 to around 16% in 2025.
The Logic Behind the Target Price Upgrade
Tesla’s current market cap is $1.45 trillion, with an EV/EBITDA ratio of 125.8x (2025 expected), much higher than traditional carmakers. This valuation is built entirely on optimism about autonomous driving and AI, not on fundamentals.
Despite weak fundamentals, Barclays still raises the target price by 27% to $350, but this mainly reflects a valuation revision for AI/autonomous driving opportunities (base scenario P/E boosted from 41x to 65x), and is not recognition of fundamental improvements. The current stock price of $435 still has about 20% downside.
Moreover, Barclays holds a neutral to slightly negative stance before and after the Q3 earnings report. The reason: The surge in stock price fully reflects earnings expectations, while the report might remind the market of the post-Q3 fundamental weakness. That said, the bank also emphasizes that any pullback may be short-lived, as the shareholder meeting on November 6 could re-ignite enthusiasm for the growth narrative.
This article is from WeChat Public Account “Hard AI”. For more cutting-edge AI news, please go here
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