Tesla Stock Is More Than 100% Overvalued, Warn Top Wall Street Analysts

"The days of Tesla’s virtually unchallenged dominance may be numbered," a top analyst warns.

Thanks to Tesla’s stock surge, Elon Musk is now the world’s seventh richest person. Paul Hennessy/SOPA Images/LightRocket via Getty Images

Tesla (TSLA)’s wild stock surge is confounding common sense. Since crossing the $1,000 mark on June 10, the electric carmaker’s share price has soared another 70 percent in just a month, making it not only the world’s most valuable automobile company (despite selling significantly fewer cars than its similarly valued competitors), but also the 10th largest stock in the U.S., trailing tech giants like Apple, Amazon and Google.

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On Friday, Tesla CEO Elon Musk’s net worth officially surpassed that of Warren Buffett, according to the Bloomberg Billionaires Index. And it’s still on the rise. On Monday, Tesla shares jumped 13 percent to a new record high of $1,773, trading at more than twice above its average Wall Street price target ($805) and three times higher than where it was at the beginning of 2020.

Why Does Tesla Stock Keep Surging?

New production plans, strong delivery numbers, analyst upgrade and talks of including Tesla in the S&P 500 (SPX) index have all contributed to pushing its stock through the roof.

Last week, Tesla shares saw a strong two-day rally after the company reported better-than-expected delivery numbers for the second quarter, defying analysts’ worry that the coronavirus pandemic might have put a dent in EV sales. And as stock continues to climb and Tesla nears the date to report second-quarter earnings, talks have been going around that the company could be the latest addition to the S&P 500 index.

To be included in the S&P 500, companies have to earn an accounting profit for more than four quarters in a row. Tesla has reported three consecutive profitable quarters. We’ll know if the company has met the final requirement when it reports earnings on July 22.

What Are Experts Saying?

Some analysts have warned that, rather than the stock boom fueling Tesla’s prospect of being included in S&P 500, it’s the anticipation of entering S&P 500 itself that has fueled the stock surge.

“By buying up Tesla [stock] now, front-runners are forcing the S&P Indexes to give the stock a higher and higher weighting,” Larry McDonald, editor of The Bear Traps Report, wrote in a recent note. “Thus, ETFs / Indexes will be forced to pay up, buying even more shares. Then the hot money exits, leaving indexes holding the bag.

Morgan Stanley’s transportation analyst Adam Jonas, one of the market’s most important voices on Tesla, is skeptical on the stock’s long-term promise, too. When Tesla passed $1,000 last month, Jonas warned investors that Tesla needs to be delivering at least four million cars to justify the price. (Tesla plans to deliver half a million units in 2020.)

“One must also take into account many of Tesla’s business objectives face a degree of execution risk that may be significantly higher than many of the more proven/mature companies in this analysis,” Morgan Stanley said in a note on June 24.

“The days of Tesla’s virtually unchallenged dominance may be numbered,” Jonas said in a note on Friday. He has an underweight rating on Tesla stock and a $740 price target.

Tesla Stock Is More Than 100% Overvalued, Warn Top Wall Street Analysts