The share price of electric carmaker Tesla has nearly quadrupled this year, thanks in part to smooth talking by its founder, California entrepreneur Elon Musk. That is, until a paragraph of calculations in a Goldman Sachs report sent its shares down by 13.7% on July 16, their biggest one-day loss in 18 months. But do not count out the company yet.
Tesla started the year at $34.38 a share. Then in May, Musk reported the company’s first quarterly profit, and he won stunning reviews for the new Model S sedan. Next year, Musk said, he will release a sleek sport utility vehicle. By July 12, Tesla’s shares had hit $129.90.
But on July 16, Goldman analyst Patrick Archambault released a 53-page industry research note. At the very end, after assessing GM, Ford and their rivals, Archambault tacked on a blunt paragraph describing why Tesla is seriously overvalued.
He did so by laying out three sales scenarios, then doing the math for each.
In the first, Tesla sells 104,561 cars this year and earns 14.6% in operating margins. In the second, the company sells 150,000 cars, with 14.8% margins. In the third, Musk sells 200,000 Teslas and earns 15.2% margins.
The best case—the 200,000 in sales—would make Tesla shares worth $113 each, Archambault figured, or 13% less than their July 12 closing price. The worst case would make the shares worth $58 each.
Archambault went on to say that the most sensible approach was the middle view—150,000 in sales. By his math, that scenario values Tesla shares at $84 each, or 35% lower than the July 12 close.
The last time Musk faced such adversity was in February 2013, when he accused New York Times reporter John Broder of journalistic malpractice after his detailed description of driving the Model S in cold weather. The big share price run-up followed. Musk is sure to challenge Archambault, too.