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HSBC Tesla Report Carries a Sell Rating at $146 With 33% Downside: Why Their Report Is Flawed

There was a recent report from HSBC that puts Tesla at a $146 price target with 33% downside. Here's why their report is flawed.


HSBC Tesla Report user Gary Black is one of the most followed Tesla reporters. He even carries this stock in one of his funds, The Future Fund, of which I don't own any shares. If you haven't followed him, he gives very good updates on Tesla @garyblack00.

One thread he created was about the HSBC report and why it is flawed. First, I'll go over what HSBC is and what they reported on Tesla and why they said there is a 33% downside.

HSBC is named after founding member, the Hongkong and Shanghai Banking Corporation Limited. Their report carries a sell rating to Tesla and relies on classic reversion-to-the-mean analysis, according to Gary Black.

The research report uses two common approaches: DCF and multiples-based to get to their $146 valuation, says Gary Black. The DCF approach presumes huge Tesla EV share losses between 2023 and 2030, a 30% average selling price reduction during that time, and most critically, a 2.5% terminal earnings growth rate assumption. This leads to a $201/share DCF-based valuation.

Gary Black goes on to say that this approach create a $92/share valuation and is based on 2023 and 2024 EBITDA and EPS with a 6 multiple applied - much less than Ford and Toyota.

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Why the Report Is Flawed

This report by HSBC is flawed in multiple ways, according to Gary Black, and the primary ways it is flawed are:

* The report fails to capture the super growth expected by most Tesla investors and from global EV adoption rate increases
* Tesla TAM (total addressable market) doubles with Cybertruck and the $25,000 compact car

The Cybertruck and compact car will produce the majority of Tesla value after 2024.

The report also assumes Tesla will go from 1.8 million vehicles delivered now in 2023 to only 5.9 million delivered in 2030. This assumes an 18% yearly growth rate, whereas Tesla said that around 50% is the growth rate.

The report also assumes the average selling price falls from $45,600 in 2023 to $31,900 in 2030, which is a 30% decline.

Even though the Cybertruck will raise the total average selling price, I believe the average selling price will go down over time, with the compact car and sub compact car contributing to most of Tesla's sales.

Lastly, it only assumes an earnings growth rate of 2.5% which is laughable. This is less than the S&P 500 average.

To sum up, Gary Black says that it's almost as if the team at HSBC had a pre-ordained answer they wanted to get to - a reduce rating.

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What do you think about this report from HSBC - is it accurate?

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Jeremy Johnson is a Tesla investor and supporter. He first invested in Tesla in 2017 after years of following Elon Musk and admiring his work ethic and intelligence. Since then, he's become a Tesla bull, covering anything about Tesla he can find, while also dabbling in other electric vehicle companies. Jeremy covers Tesla developments at Torque News. You can follow him on Twitter or LinkedIn to stay in touch and follow his Tesla news coverage on Torque News. Image Credit, Tesla, Screenshot