The spread between bullish and bearish sentiment on Tesla (NASDAQ:TSLA) stock is bigger than for any stock ever.
Bulls compare it with Apple (NASDAQ:AAPL), bears with General Motors (NYSE:GM).
Right now, the bulls look right. TSLA stock is worth over 5 times next year’s revenue and 30 times 2024 earnings. At $145/share Apple trades at 7 times next year’s revenue and 27 times estimated 2024 earnings.
GM is worth $44 billion, less than one-third its revenue, and it carries a price to earnings multiple below 5. It’s still nearly two times bigger than Tesla, but most of its cars still run on gasoline.
Still. Investors buy the future, not the past. Can Tesla fall from here, and how far?
A Closer Look at TSLA stock
Tesla sales are still rising, but only because of aggressive price cuts. Its product line hasn’t had a full refresh in five years.
That should deliver an unpleasant surprise when Tesla next announces earnings on Oct. 18. The company’s valuation is based on rapid growth and solid margins. The current earnings estimate is 80 cents/share, two cents higher than the second quarter.
Much of the problem relates to China. BYD (OTCMKTS:BYDDF) and the Chinese car makers traded in New York keep grabbing market share, not just in China but in Europe. China invited Tesla to build its domestic EV business in the last decade, and the bill is coming due.
Electric cars are just batteries on wheels. China dominates there. Its largest battery maker, CATL, is building a plant in Michigan to supply Ford Motor (NYSE:F) but it also supplies Tesla.
Tesla’s next U.S. battery plant will have CATL as a partner. China dominates the battery market, which means China will dominate the EV market.
Are EVs Right?
In the U.S., Tesla’s biggest problem isn’t China but Japan.
Toyota (NYSE:TM) will make 10.2 million cars this year and has higher operating margins than Tesla. It is touting an all-hybrid product line and making the engines in the U.S.
Prices start at under $25,000 and the quality is outstanding. (Full disclosure. I bought a Toyota Corolla hybrid last year and love it.)
Toyota isn’t alone. The whole mid-market is going hybrid with names like Honda, Nissan, and Korea’s Hyundai. Many of these cars are manufactured in the U.S. Hybrids have twice the efficiency of gasoline engines, even when they lack a plug.
Toyota may also be the only company that can challenge CATL in battery technology. What’s needed for EVs to replace hybrids are solid state batteries with higher energy density. Toyota will have them.
No CEO in history has seen his reputation fall as fast as Elon Musk. He has gone from being the 1914 Henry Ford to the 1938 Henry Ford in barely two years.
Buying Twitter and making it X has changed the public’s view of Musk. It’s driving buyers away from the brand. Whether his politics are left, right, or just self-centered doesn’t matter. What matters is that Elon’s antics are impacting Tesla’s reputation, and not in a good way.
The Bottom Line on TSLA Stock
I don’t think Tesla’s problems make it General Motors. I don’t think it will remain Apple, either.
Tesla’s future looks more like Toyota.
Toyota is up 25% this year. But it can go higher. Its PE ratio is just 11. Its dividend is nearly 3%. Its market cap remains slightly less than its fiscal 2023 sales of $253 billion.
The stock’s comeback began in January when it replaced Akio Toyoda, a grandson of the company’s founder, with Koji Sato, who had been running the Lexus unit.
Sato aims to make Toyota more like Tesla, with all-electric vehicles and a close embrace of its customers. He has the tools and the cash to do it, and any success will send Toyota stock up.
Any failure, meanwhile, will send TSLA stock down. I expect them to meet in the middle.
As of this writing, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.