BNP Paribas couldn't justify Tesla's high share price: it expects a 30% drop

Investment bank BNP Paribas Exane began coverage of Tesla shares - and immediately advised selling them. He expects quotes to fall by 30% in the baseline scenario. The bank estimates that three-quarters of the company's share price is investors' expectations of profits from Tesla's artificial intelligence projects, such as the robotaxi and humanoid robot Optimus. However, so far they are not generating revenue, and it is unclear when they will start.

BNP Paribas began coverage of Tesla shares with an Underperform rating, which corresponds to a sell recommendation. The bank expects the price of the securities to fall to $307, which is 30% less than the current price.

"We are optimistic about Tesla's future in AI, as reflected in our fairly generous base case scenarios that assume Tesla will meet more than half of Elon Musk's $1 trillion compensation package targets by 2035," the investment bank said in a note quoted by CNBC. - However, we still can't justify the current market valuation of the stock."

The electric car maker's stock was down nearly 3 percent to $421.3 at the low in Thursday trading.

BNP Paribas' valuation approach includes Tesla's artificial intelligence projects, including self-driving cars Robotaxi and humanoid robots Optimus. These projects are not yet generating revenue, but the bank's analysts estimate that they form about 75% of their total target valuation of $1.02 trillion for the company.

BNP Paribas Exane analysis covers the horizon up to 2040, Investing.com writes. According to the bank's "bullish" scenario, Tesla's maximum valuation could reach $2.7 trillion. However, it is the base case scenario, which provides for a decrease in capitalization, is drawn up taking into account the likelihood of the company reaching key target milestones: about 525,000 active robotaxis by 2030, 17 million cumulative deliveries of Optimus robots by 2040 at a price of more than $20,000 per unit and more than 11 million active subscriptions to the Full Self-Driving system by 2030.

BNP Paribas also compared Tesla's stock to the other "Magnificent Seven" technology companies and concluded that Tesla's current market value implies that the company's earnings in 2035 have the same level of risk as the earnings of the other six companies in the "Seven" in the much closer future - in 2026. Moreover, 55% of Tesla's projected earnings in 2035 come from areas that are not yet generating revenue, while the projected performance of the other companies in 2026 is fundamentally sound.

On October 14, Melius Research analyst Rob Wertheimer gave Tesla securities a Buy rating and set a target price of $520 for the first time. That implies a potential upside of 19.5% from the closing level on Oct. 15. Tesla, according to Melius, can rapidly improve and scale its production of self-driving cars, which would be the first significant real-world manifestation of artificial intelligence. "Our 'buy' rating is based on the belief that interest in fully autonomous driving will grow as investors, including retail investors, realize how revolutionary this experience is," the analyst explained.

According to MarketWatch, out of 52 analysts' estimates, the electric car maker's stock has 24 buy, 16 hold, and 12 sell recommendations. The Wall Street consensus price target implies a 16% decline in quotes to $365.

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