Coronavirus Could Take Tesla Stock To $130

It’s possible Tesla reports poor Q1 deliveries later this month and lowers its guidance for deliveries in 2020 to levels of 200K (as opposed to 400k in 2019) – or even lower. Given little reason for people to buy cars right now, the market’s revised 2020 expectations for Tesla deliveries could very well be at the 100K levels. The market will not take this well, resulting in Tesla’s P/S multiple falling from about 3.6x currently to just 1.5x.

Notably, a significant contributor to the strong growth in Tesla’s stock over recent years has been Tesla’s P/S multiple, which grew from about 2.6x at the end of 2018 to about 3x at the end of 2019 and further to 3.6x (on a trailing basis). An upbeat multiple has helped the stock gain almost 20% year-to-date and roughly 50% since 2018 despite the current market turmoil caused by the coronavirus pandemic. But as we detail in our dashboard Could Tesla Stock Fall 75% From Here?, a weak showing in Q1 coupled with a sharp reduction in guidance figures could see the stock fall off the cliff.

So What’s The Likely Trigger & Timing To This Downside?

The global spread of Coronavirus has meant there aren’t many people buying new cars. Moreover, discretionary spending is likely to drop as the economy slips into a recession (which now looks inevitable), causing sales of Tesla’s pricey vehicles to plummet. Tesla’s production also faces risks, as it has suspended manufacturing at its Fremont facility, which manufactures a bulk of its vehicles. Separately, there is a possibility that the sharp decline in crude oil prices to their lowest levels in close to 2 decades could also hurt demand for electric vehicles. We believe Tesla’s Q1 results in April will confirm the hit to its revenue. It could also accompany a lower Q2 as-well-as full-year 2020 outlook as well.

Specifically, it’s likely that full-year revenue expectations formed by the market at the time of Q1 results may be closer to $15 billion – about 40% lower than the $24.5 billion that the company posted in 2019, assuming that deliveries fall from 366k in 2019 to 230k in 2020. Our dashboard shows the key components of Tesla’s revenues.

The market isn’t going to stomach this well, and Tesla’s P/S is likely to shrink by over 50% from 3x seen in 2019 to about 1.5x. Considering the lower revenues and multiple, Tesla’s stock price could decline to about $130, down from current levels of $500. Will such a drop be justified? Absolutely not. However, investors who are first out the door in a panic selling situation take a smaller hit to their portfolio.

But this isn’t even the worst-case scenario. A full-blown global recession could potentially result in Tesla’s stock falling to $0, as we explain in a separate dashboard.

What About The Recovery?

The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. We do believe these trends are likely to reverse in later quarters of 2020. As the Coronavirus crisis is tamed during late Q2, higher revenue and earnings expectations will replace the dire scenarios that are easily imagined during difficult times.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture and complements our analyses of the coronavirus outbreak’s impact on a diverse set of Tesla’s multinational peers. The complete set of coronavirus impact and timing analyses is available here.

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