Tesla has rebounded since this was first written but I am still not a buyer. Have some exposure through ETfs and I think Google through Waymo will win contest for self driving vehicles.
Abstract:
Tesla is a highly innovative company but a terrible stock to own given its current valuation and future prospects. The recent drop in the Tesla stock price is not a transitory response to Musk’s political activities. Tesla market share in key markets has fallen steadily prior to Musk’s entry into politics. Many well finance sophisticated firms are competing for control of the self-driving auto market. Tesla’s share of this new market is uncertain and will likely be relatively modest.
Introduction:
Many investors love Tesla.
Cathie Woods has a $2600 price target in five years on Tesla with around 90 percent of the value of the company coming from Robo taxies. This would make the Tesla valuation around the size of the sum of the current two largest companies in the world and 80 percent of the third largest.
Tesla stock is substantially off its high and some analysts believe that this is a good time to buy a transitory dip. The 52-week high is around $488. The current stock price is hovering in the $240 to $300 range.
Tesla is an innovative company with great technology, but I am NOT a fan of the stock.
First, the recent decline in the price of Tesla stock is not a transitory response to Musk’s political activity. There has been a substantial drop in Tesla market share and growth in competition for two years.
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Second, the growth of automatic driving will be lower and slower than anticipated. Many other tech companies and car companies are backing entrants to this field. Tesla’s share of the Robo Taxi market is uncertain and may turn out to be modest.
My range for the price target for TESLA is $150 to $175.
Economic Fundamentals:
· The growth in battery EV sales (Tesla’s product) is flat compared to the growth of all electrified (hybrid vehicles, PHEV, HEV) vehicles.
· EV market share went from 7.3 percent of the total market in Q1 2023 to 8.7 % of the total market in Q4 2024. Total electrified market share went from 14.5% Q1 2023 to 21.2 % Q3 2024, (Q4 not available yet.)
https://caredge.com/guides/electric-vehicle-market-share-and-sales
· Tesla’s market share for EVs in the United States fell from 74.8 in Q1 2022 to 44.4 Q4 2024. BEFORE DOGE.
· Tesla is losing ground in China to BYD.
· BMW EV sales surpassed Tesla EV prior to DOGE. Volkswagen and BYD EV sales are now also surging and BYD is opening factories in Europe.
Potential impacts of self-driving vehicles on Tesla growth:
· The self-driving field is very crowded. Here is a list of 10 competitors. The list does not include BYD, a major player.
· Tesla has the pole position but its PE ratio of 131.8 is really high even compared to other tech firms.
· The PE ratio of Alphabet (owner of Waymo) is 19.8
· Amazon (current PE 35) owns a potential entrant.
· Cruise, a company backed by GM, Honda, Microsoft, Honda and Walmart with a valuation of $30 billion, has more upside than Tesla a company that has a current market cap of $863 billion.
· Tesla and American tech firms are not positioned to do well in this new industry in Europe or Asia. Trump’s tariffs will adversely impact foreign sales of tech and autos. There is substantial competition from two Chinese firms Baidu and BYD and competition from the Volkswagen group.
Concluding thoughts:
Tesla is a highly innovative company but a terrible stock to own given its current valuation and future prospects.
Main thing I would say about Tesla is that valuing it off P/E alone has been a red herring in the past. They are quite a cyclical business with slumps and then immense revenue growth periods, I believe there is a strong chance we are in a slump right now.