Overselling has gone too far! Wall Street bulls argue: Tesla has been severely mispriced

According to the Zhitong Finance APP, Tesla (TSLA.US) has faced continuous pressure on its stock price this year, but one analyst suggests that investors might consider taking a calm approach.

Despite the accumulation of headwinds and frequent technical warning signals, Tom Narayan, an analyst at Royal Bank of Canada Capital Markets (RBC), believes that the recent sell-off of Tesla's stock has been excessive. In a recent report to clients, Narayan reiterated his "outperform" rating on Tesla and raised the target price from $307 to $319, indicating about a 7% upside from the current level.

Narayan wrote, "We believe that even in the face of increasingly fierce competition in the electric vehicle market, the demand for Tesla's products remains strong. Its advantages in technological leadership, profitability, cash flow generation, and brand premium will continue to empower business growth."

RBC's valuation model shows that Tesla's core automotive business is valued at 1 times sales, while a premium weight is given to long-term growth points such as the Megapack energy storage system, autonomous driving, and artificial intelligence—applying a 15 times multiple to the EBITDA of the Megapack business by 2040 and a 10 times revenue multiple to future Robotaxi and humanoid robot businesses.

Narayan believes that from a long-term perspective, it is worth holding Tesla stock through the current tough times. However, not everyone agrees with this view.

Tesla's stock price has fallen more than 20% this year, and Adam Turnquist, chief technical strategist at LPL Financial, stated that short-term technical indicators suggest further declines may be ahead. Compared to the impressive performances of members of the "Magnificent Seven" like Nvidia (NVDA.US) and Meta (META.US) (which have risen 16% and 20%, respectively), Tesla has clearly lagged.

Tesla's recent financial data has also failed to boost market sentiment. The company's second-quarter earnings report showed that vehicle sales were 384,122 units, a year-on-year decline of 13.5%. The decline in electric vehicle demand, coupled with CEO Elon Musk's involvement in politics leading to boycotts and protests, has led some analysts to be skeptical about the company's ability to rebound in the near term.

Nevertheless, Narayan sees opportunities. RBC expects Tesla's revenue to rebound from an estimated $93.5 billion this year to $111 billion by 2026. During the same period, adjusted earnings per share (EPS) are expected to rise from $1.99 in 2025 to $2.99 in 2026. This growth will benefit from capacity expansion, new product launches, and higher profit margin growth from non-automotive businesses.

Narayan also pointed out that Tesla's Robotaxi could provide potential momentum, likely reigniting investor enthusiasm for its fully autonomous driving vision. RBC explained, "Tesla is the benchmark company in the electric vehicle sector." Piper Sandler analysts recently referred to Tesla as "the most transformative company in the automotive industry," noting that in the long run, the company "may win." Nevertheless, RBC still pointed out several risks, including earnings volatility, cost inflation, and supply chain issues. The bank also mentioned that Tesla's business is "cyclical" and susceptible to overall economic slowdowns, especially in cases where rising interest rates or geopolitical shocks suppress consumer spending.

Of course, there is also the factor of Musk. The Tesla CEO has come under new scrutiny for making political and divisive comments online, raising questions about corporate governance and long-term brand strength. This uncertainty remains a significant variable for investors. For now, the Royal Bank of Canada maintains a firm stance.

Narayan noted, "Due to timing and various production issues, the company's performance and quarterly reports may be unstable, which could lead to stock price fluctuations. However, Tesla is a growth company regardless."