Tesla, known primarily as a car company, offers more than meets the eye. Examining Tesla on a sum-of-the-parts (SOTP) basis, Wedbush analyst Dan Ives discovered the potential valuation trend.

SOTP valuation entails assessing and assigning value to the distinct businesses within a company. This approach helps identify any significant disparity between business valuations and the current stock price. Similar exercises have recently been undertaken by Wall Street for General Electric (GE), 3M (MMM), and Alibaba (BABA), all of which either spin out assets or plan to disrupt their operations.

Although Tesla is not breaking apart, noteworthy developments are taking place. Tesla has entered into agreements with several automakers to open up its supercharging network to non-Tesla electric vehicles (EVs). This move has compelled investors and industry experts to acknowledge the value of Tesla's EV charging network.

Furthermore, Ives recognizes the presence of separate AI, battery, and energy businesses within Tesla, in addition to its well-established car business. Tesla employs AI technology to enhance its self-driving features. Elon Musk, the visionary behind Tesla, envisions the company's self-driving software advancing to the point where it can transform all current Tesla vehicles into self-driving robotaxis with just a simple switch. Moreover, Musk has hinted at the possibility of licensing Tesla's self-driving software to other automakers.

Tesla also generates revenue from its battery storage products for consumers and utilities. In fact, this division witnessed a remarkable YoY growth of over 220% in the second quarter of 2023. Additionally, Tesla manufactures its own batteries, showcasing the profitability of this sector. A notable example is Contemporary Amperex Technology Co Ltd (300750.China), commonly known as CATL, which holds a market capitalization of approximately 1 trillion Chinese Yuan ($137 billion) as the world's largest battery maker.

In conclusion, it is crucial for both Tesla's bulls and bears to see beyond the label of a car company. By recognizing the various businesses within Tesla, one can grasp its true valuation potential.

Tesla's Diverse Product Portfolio

According to analysts, Tesla has developed a diverse portfolio of products. The company's focus on battery production has led to lower costs for its auto business. Additionally, Tesla's self-driving software products have accumulated an impressive track record, having logged over 150 million miles of driving. The implementation of Artificial Intelligence (AI) in Tesla's continuous rollout of new self-driving software updates is expected to expand its market reach, with full autonomy as a growing focus.

Bullish Outlook and Valuations

While SOTP (Sum-of-Parts) valuations may vary depending on the company's circumstances, Tesla has been receiving a bullish outlook. Numerous analysts rate the company's shares as Buy, with one analyst setting a price target of $350 per share, which is among the highest on Wall Street. This valuation equates to approximately 73 times the estimated earnings per share ($4.80) for 2024.

Analyst Perspectives and Market Comparisons

Around 39% of analysts covering the company recommend buying Tesla shares, slightly below the average Buy-rating ratio of stocks in the S&P 500, which stands at about 55%. The average price target estimated by analysts is approximately $254 per share. This figure translates to roughly 53 times the consensus estimate of $4.78 per share for 2024.

Recent Performance and Influencing Factors

Tesla stock has experienced a slight increase of 0.1% in premarket trading, reaching $230.39 per share. In comparison, S&P 500 and Nasdaq Composite futures have risen by 0.3% and 0.1% respectively.

Throughout August, Tesla stock has faced a decline of around 14%. Factors such as price cuts by Tesla and its competitors in China, along with the general market sell-off, have impacted investor sentiment.