Why Aswath Damodaran thinks Tesla is overvalued currently

Damodaran last valued Tesla in January 2023, after it had lost 60 percent of its market cap in the months before

Tesla looks overvalued at $200 a share, says valuation guru Aswath Damodaran, valuing the Elon Musk-led electric carmaker’s scrip at $180.

In a blogpost on November 1, Damodaran, who is a professor of finance at the Stern School of Business at New York University, acknowledged that he didn't own or drive a Tesla and knew far less about the company than the many Tesla bulls or bears tracking the EV manufacturer's every move.

“That won't stop me from trying to value the company (again), as the stock price drops to $200,” he added. “I first valued Tesla in 2013, and have valued it every year since. I have been badly wrong on its value before, but I have learned about the company and have no regrets.”

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Damodaran last valued Tesla in January 2023, after it lost 60 percent of its market cap. The stock bounced back in the first half of 2023 before slipping again, with the last earning call triggering the latest meltdown.

Tesla’s third-quarter results fell short of analysts' expectations amid an ongoing price war that has hurt margins. The electric vehicle maker said revenue in the third quarter rose 9 percent to $23.35 billion while operating income tumbled 52 percent from $1.76 billion in the year-ago period.

“The financial results from 2023 show auto revenue growth coming down from post-COVID highs and auto margins declining, but both are above industry averages. Tesla's pivot to energy storage has revitalized that business, with growth and margins up in 2023,” Damodaran wrote.

There have been three big stories about Tesla in 2023 — the price cuts of its lowest-priced models, its work on Full Self-Driving (FSD) and the eye-catching Cybertruck.

“Tesla increasingly looks like a multi-business company with value coming from autos, energy, software and robotaxis, though there remain disagreements about the potential for each and Tesla's advantages on each one,” he said.

Damodaran added that his outlook for each of Tesla's four businesses — autos, energy, auto software and robotaxis — were upbeat but the auto software and robotaxi estimates were "squishy" and would need a revisit, as both businesses were nascent.

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“Aggregating the revenues and operating income for all four businesses, I estimate an equity value of $625 billion for equity, a value per share of $180,” he wrote.

Autos represent the largest portion of value, but a surprisingly large portion comes from the software and robotaxi businesses. Tesla's advances and setbacks on FSD will have an effect on value, he said.

“At $200 a share, Tesla looks overvalued, based upon my story, but it is two bad market days from becoming a buy. I have a limit buy at $180, with the recognition that it may never get there and that I have no margin of safety,” Damodaran said.

Tesla shares are down 18 percent over the past month, though the YTD return stands at 90 percent.