The biggest mistake $Tesla(TSLA.US) bears make is

The biggest mistake $Tesla(TSLA.US) bears make is slapping an auto industry P/E on TSLA’s EV business. From long-term $Tesla(TSLA.US) bear Drew Dickson’s latest report: “We can make a simple determination of what the automobile business is worth. And, by implication, the balance must be these other "Musk Options." In auto-land, the average P/E for Ford, BMW (XE:BMW), Mercedes (XE:MBG), GM (GM), Renault (FR:RNO), Stellantis (STLA) and Volkswagen (XE:VOW) is 6.5x. Include Honda (JP:7267), Toyota (JP:7203) and SAIC (CN:600104), it is 7.7x.”

“If we assume the Tesla automotive business - despite all its deteriorating metrics - is a better business and deserving of a higher multiple than each of them, perhaps we can say it should be worth a P/E of 10x. Maybe we could even say 15x. At a 2025 P/E of 15x, Tesla's auto business would have market cap of $100 billion. That is still a heck of a lot, more than any other automaker except Toyota (which generates 5x more sales and Ebitda). And if we assume we are close, that means that the market already values Tesla's FSD, robotaxis, Optimus and the energy business at roughly $1 trillion. And for the Tesla fans laughing at our valuation of the automotive business, even if Tesla's automotive business were worth twice that amount (a P/E of 30x), the "Musk option" would be valued at $900 billion. In other words, Tesla's share price already assumes - and prices in - a tremendous amount of success for Tesla's non-automotive manufacturing businesses.”

While we have high respect for Drew as a reasonable bear, we believe his approach is flawed because P/Es are based on forward revenue and earnings growth rates of businesses, and not the industry in which they compete. Does $Cava(CAVA.US) trade at the same P/E as $McDonald's(MCD.US)? Does $On Holding AG(ONON.US) trade at the same P/E as $Nike(NKE.US)? Does $Costco Wholesale(COST.US) trade at the same P/E as $Target(TGT.US)? The answer to all of these is of course not.

To say that $Tesla(TSLA.US) should trade at no more than a 15x P/E just because GM, F, STLA, VW, and TM trade at 7-8x EPS ignores the fact that TSLA is 100% EVs which are growing at 25-30% per year while ICE vehicles are in a state of permanent decline. Of course there should be a huge difference in P/Es between EV manufacturers and ICE manufacturers given stark differences in growth prospects.

We continue to like $Tesla(TSLA.US) longer-term but remain concerned about the near-term asymmetrical risk/reward associated with the Austin robotaxi test that begins 6/22. We also worry that the more affordable vehicles targeted for 3Q will be lower cost, lower priced M-3 and M-Y that are not new form factors and do not increase TSLA TAM but instead cannibalize the more expensive M-3 and M-Y trims. Finally, we believe TSLA 2Q volumes are likely to again disappoint (~380K -14% YoY vs Street consensus of 394K -11% YoY) as the China EV price war led by $BOYD Gaming(BYD.US) and the U.S./European brand taints take their tolls on 2Q deliveries to be announced 7/2.