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Is Tesla a good investment?
In the fast-paced world of finance and investment, few companies have captured the imagination of investors like Tesla Inc. With a market cap exceeding the value of every legacy car manufacturer combined – even after falling from its 2022 peak valuation of $1.2 trillion – speculation over its worth and potential is an occupation for many in the market.
How did Tesla perform in 2023?
In a first for the EV manufacturer, Tesla was beaten to the top spot as the world’s leading manufacturer of electric cars for the first time in Q4 2023. Snatching the crown was Chinese rival BYD, who sold 526,000 vehicles against Tesla’s 484,000 in the same period.
Although Tesla’s performance beat expectations, with analysts having expected just 473,000 sales in the previous quarter, it wasn’t enough to beat off the competition. The emerging challenge highlights the threat Tesla faces from the Chinese automotive giant, which celebrated the sales figures by claiming to be ‘The world champion for new energy vehicles.’
The blow followed a Q3 plunge in Tesla’s share price and a report revealing Tesla’s share of the market had fallen to a (still impressive) 50 per cent, down from 65 per cent the previous year. As reported by Cox Automotive, while cuts to Tesla vehicles helped boost sales in Q3, it wasn’t enough to keep up with overall growth in the sector:
“In an attempt to increase sales volume, Tesla slashed prices, which are now down roughly 25% year over year. The price cuts have helped, as Tesla’s Q3 sales grew by 19.5% year over year, surpassing the industry’s overall growth rate of 16.3%. However, Tesla’s share of the EV segment continues to plunge, hitting 50% in Q3, the lowest level on record and down from 62% in Q1.”
Commenting on the news, Forbes’ contributor Robert Rapier said that while Tesla ‘was not about to go away’ he cautioned against further turbulence in the firm’s share price, warning investors to ‘buckle up’ as any return to Tesla’s full spectrum dominance of the market could be ‘long and winding.’
Will Tesla do better in 2024?
According to industry magazine Investor’s Business Daily, investors remain optimistic about Tesla stock. In a recent analysis of the EV maker’s prospects for 2024, the outlet reported the development of charging infrastructure, advances in self-driving tech, and developments in AI, providing reasons to remain optimistic.
While they expect Tesla’s margins to see a continued squeeze as further price cuts spill into 2024 to counter a cost-of-living squeeze, the consensus remains Tesla will ship a whopping 2.1 million vehicles this year, a million more than they delivered in 2023.
Analyst Dan Ives of Wedbush, said the latent potential in the global energy transition should not be discounted when looking forward to Tesla’s future, pointing out that the best days for the EV market, and Tesla, could be yet to come. He said:
“While overall EV demand has clearly moderated globally, we are still in the early days of this massive transformation with Tesla leading the way as we estimate by 2030 roughly 20% of autos will be EV based.”
It was a view shared by Jeremy Bowman of investing advice firm, The Motley Fool, who predicted 2024 would be a ‘winning year’ for Tesla, going as far as to say the chances of the firm re-establishing a market cap of $1 trillion were ‘reasonable.’ Commenting, Bowman said:
“Heading into 2024, Tesla bulls are probably expecting another winning year from the stock as interest rates are expected to fall, rival automakers such as GMand Ford are pulling back on EVs, and Tesla just hit its full-year 2023 delivery guidance of 1.8 million vehicles.
“In 2024, the company should also benefit from the recent launch of the new Cybertruck and, potentially, new developments in artificial intelligence as Tesla is expected to eventually allow its vehicles to be driven autonomously and to develop a fleet of Robotaxis that will be designed solely as ride-sharing vehicles without steering wheels or other components that a human driver would use.
“One question on many investors’ minds is if Tesla will reclaim its status as a trillion-dollar company. That would require a 27% gain this year. That would be reasonable, but it’s certainly not guaranteed.”
Is Tesla overvalued?
The question of whether Tesla is overvalued has been a subject of intense debate within the financial and investment community. Examining various indicators and market dynamics provides a nuanced perspective on the electric vehicle giant’s valuation.
Tesla’s bulging stock price has often prompted talk of overvaluation. A 2023 analysis by Bloomberg has shown that Tesla’s price-to-earnings (P/E) ratio stands significantly higher than the industry average. The P/E ratio, a key valuation metric, reflects the market’s expectations for a company’s future earnings growth.
Tesla’s lofty P/E ratio suggests that investors are pricing in substantial future earnings growth, and any deviation from these high expectations could impact the stock’s valuation.
Speaking to CNBC in January 2023, Roth MKM analyst Craig Irwin shared a gloomy forecast for Tesla, describing the company as ‘egregiously’ overvalued. Appearing on the station’s Closing Bell Overtime show, the analyst, who is notorious for being bearish on Tesla, said: “Toyota is the world’s largest auto producer with about 9 million cars per year, and there is nothing Tesla has that Toyota does not.”
But it is essential to consider Tesla’s ambitious expansion plans, particularly its ventures into energy storage, solar technology, and autonomous driving, which could pay dividends over the long term, with many industry experts crediting this potential energy as a key factor in the firm’s strong share valuation.
However, critics argue that Tesla’s valuation may be disconnected from its current financials. The company has reported inconsistent profitability, and sceptics question whether its stock price accurately reflects the inherent risks and challenges in the highly competitive automotive and technology sectors.
Will Tesla stock go up or down?
Predicting the future direction of Tesla’s stock cannot be an exact science, as, like any stock, its fate is hostage, depending on a myriad of factors ranging from market sentiment to global economic conditions.
While some financial analysts express optimism about Tesla’s stock, pointing to the company’s continued innovation, strong demand for electric vehicles, and expansion into other markets such as energy storage and autonomous driving, others express a more cautious stance, citing concerns about the firm’s valuation and the potential impact of rising interest rates on high-flying tech stocks. Some analysts argue that Tesla’s stock may face headwinds as investors reassess risk in the broader market.
It’s important to note that stock markets are inherently unpredictable, and individual investors should always take financial advice and conduct thorough research before making investment decisions.
