(Bloomberg) – Tesla Inc. shares have fallen so far so rapidly that some individual investors are piling in, seeing a chance to pick up what was once Wall Street’s highest flying stock on the cheap.
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But would-be bargain hunters might want to take a closer look.
Even after this year’s record 65% drop, the electric carmaker’s meteoric rise in 2020 and 2021 has left it with a market value of $389 billion, more than Toyota Motor Corp., General Motors Co., Stellantis NV and Ford Motor Co.. combined.
And shares are still trading at a higher value to expected earnings than most big tech giants, showing the company will see the breakneck growth promised by CEO Elon Musk and dominate the industry in the coming months. years to come.
In the short term, however, the company faces mounting challenges, including rising costs, competitive threats and the risk that a recession will dampen demand. At the same time, Musk was distracted by his takeover of Twitter, a deal that weighed on the stock amid speculation he could sell more Tesla stock to keep the social media company afloat. loses money and diverts attention from the management of the automaker. .
“Tesla has been rated for perfection – and perfection is hard to come by,” said Catherine Faddis, senior portfolio manager at Fernwood Investment Management. “People are wondering exactly why should it be trading at such a price?”
Such concerns fueled a Tesla selloff that sent shares tumbling more than 36% in December, the steepest monthly decline since the IPO in 2010. It offered a boon to short sellers who had bet against the stock after a period of two years. the rally pushed it up 1,163% at the end of 2021.
Electric cars are still expected to be the future of the automotive industry globally. But Tesla’s near-term outlook has been clouded by the trajectory of the economy and factors such as soaring costs for raw materials used in batteries. That led Tesla to raise prices this year as consumers grappled with rapid inflation and high interest rates. To clear its inventory, Tesla offered a rare $7,500 rebate to customers who took delivery by the end of the year, effectively matching a potential federal subsidy that begins in 2023.
Tesla set for record delivery despite demand issues
The company also faces a growing competitive threat from major automakers that are expected to flood the market with a slew of new electric vehicles over the next few years.
Despite this, the stock market expects Tesla to continue to show rapid growth, and brokerage analysts are generally more positive about the company than they were a year ago, when 29% between them advised selling the stock because it held more than $350, according to data compiled by Bloomberg. Only 11% do now that it’s down to around $123.
Tesla shares are trading at more than 24 times its estimated 12-month earnings, with GM and Ford hovering between 5 and 6. This reflects how much faster Tesla sales are expected to grow in coming years: while revenues GM and Ford are expected to grow in single digits in 2023, analysts see Tesla registering 36% growth.
However, concerns that the company could be dealing with eroding demand have grown in recent weeks, following news of year-end discounts and a temporary production halt at its factory in China.
“There is both price and volume risk” for Tesla, said Ivana Delevska, chief investment officer at SPEAR Invest. “Analysts estimate volume growth of 50%, which is overstated in an environment where affordability is the focus for the consumer.”
As Tesla slid recently, some analysts recalled their 12-month price targets, lowering the average 13% to $247. Morgan Stanley analyst Adam Jonas was among them, cutting his call to $250 from $330.
But, like those who bought the recent drop, Jonas remains bullish on the stock and his overweight rating stands. Its target implies that the share price could more than double in 2023.
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