Why One Analyst Believes that Tesla (TSLA) Stock Is “Really Expensive”

Calling the recent decline by Tesla (TSLA) stock “overdue,” Nixon Peabody analyst Daniel Kern said on Schwab TV today that the shares have an “‘I want to believe’ kind of valuation.” He indicated that he is not yet bullish on the shares.

TSLA is “really expensive for a car company,” while the value of the automaker’s AI and autonomy businesses are questionable, Kern stated. Before Tesla’s valuation can be considered attractive, the company will have to launch new products or make “tangible, visible progress” on “AI and robotics,” the analyst explained.

25 Most In Demand Cars Heading into 2024

Kern said that he would like to see Tesla’s price-earnings ratio, which currently stands at 108, enter double-digit territory.

Tesla has “some substantial advantages” compared to veteran automakers,  including “compelling product design” and “cutting-edge technology,” the analyst stated. But on the downside, the economics of the auto sector is currently unfavorable, due to competition from China, while EV demand in the U.S. is “lackluster,” Kern contended.

Also importantly, Tesla has not yet monetized its autonomy offerings and “has no clear path” to do so, according to Kern.

The Recent Price Action of TSLA Stock

The shares have dropped 6% in the last month, but they are still up 65% in the previous three months.

While we acknowledge the potential of TSLA, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than TSLA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.