If you’re a fan of the great Elon Musk, you’re probably tempted to buy Tesla (NASDAQ:TSLA) stock while it’s down 57% from its all-time high. Despite the magnitude of the decline, a strong case could be made that momentum chasers from the pandemic lockdown days overpaid for the firm during a cyclical upswing. But even now that autos are rolling downhill, TSLA stock doesn’t look cheap — not as industry dynamics change (gas and hybrid before full electric?) and a wave of new electric vehicles hit the market. Thus, I’m bearish on TSLA stock for now.
Many new models will continue rolling in from established automakers that have been in the business for decades — not to mention the Chinese rivals that may very well pressure Tesla right where it hurts: its margins.
Though tariffs of 100% and 38% from the U.S. and E.U., respectively, could fend off Chinese rivals for some period of time, the longer-term implications of such remain unclear. Additionally, Tesla may be slapped with special duties at the hands of such tariffs, given that some of its factories lie within China. As Elon Musk’s pay package news hogs the headlines, investors should give Tesla and its road ahead a second look as things get just a bit windier.
Tesla Stock May Not be Undervalued Quite Yet
Tesla stock can be quite tricky to value, especially for investors who are off-put by cyclical stocks. In general, the auto industry plays can be difficult to evaluate unless you know with certainty where we lie in the current auto cycle. Vehicles, especially top-of-the-line electric vehicles (EVs), do not come cheap. In fact, they may represent one of the biggest purchases of one’s lifetime. Given this, it’s unsurprising to see Tesla succumb to the same pressures that can weigh on the rest of the industry.
Tesla saw one of its worst first quarters in recent memory, with deliveries plunging around 20% compared to the prior quarter and 8.5% year-over-year. Investors are right to be concerned about this serious drop-off. With part (or potentially most) of a cyclical downturn baked into the stock, questions linger as to when growth and margins can start rolling higher again.
Many analysts have doubts about Tesla’s ability to return to growth in a timely fashion. With the average price target implying downside from the current share price and as many Sell ratings as Buy ratings, you’ll certainly be going against the grain with a bet on Tesla here.
Pending a miraculous, ground-breaking innovation at its coming robotaxi event marked down for August 8, 2024, the end of Tesla’s struggles may still be far off. Praise Tesla as a tech company and Elon Musk as a technological visionary, if you will, but TSLA stock certainly looks and feels like an auto stock without many options to reverse course.
Yes, at 46.6 times trailing price-to-earnings (P/E), TSLA stock is the cheapest it’s been in a while. However, it’s still trading like more of a tech stock than an auto stock, considering that the automaker industry average trailing P/E is currently 13.9 times. Given the tendency for auto stocks to look cheaper in the face of an industry downturn, I can’t say with any degree of certainty that Tesla looks undervalued here after its 57% haircut.
Cathie Wood Remains Tesla’s Biggest Bull
Perhaps Cathie Wood of ARK Invest knows how to appropriately value Tesla stock. Despite her funds’ recent lackluster track records versus the S&P 500 (SPX), Tesla still remains one of the best bets she’s made. And she doesn’t think the EV maker’s glorious ascent is over quite yet, even in the face of rising competition and industry headwinds.
In fact, Wood sees TSLA stock headed to $2,600 by 2029. With a far longer-term view of the company than virtually all Wall Street analysts covering the stock, perhaps Wood’s thesis is worth checking in with. Undoubtedly, she believes in Elon Musk and his firm’s potential in the emerging robotaxi market. Ark Invest also sees sales hitting 5.8 million in 2029.
Additionally, Elon Musk’s expertise in AI (let’s not forget he runs the show over at AI startup xAI) warrants consideration as well. Though difficult to value TSLA stock with precision, I must say Wood’s longer-term view warrants merit.
The big question is whether Tesla actually does have what it takes to dominate in robotaxis and AI or if it’s just one competitor of many that stands in the shadows of whoever ends up as the market leader. Additionally, nobody knows when such emerging technologies will finally power Tesla’s growth rates. In any case, there’s no escaping the auto headwinds, which could linger for longer.
Is TSLA Stock a Buy, According to Analysts?
On TipRanks, TSLA stock comes in as a Hold. Out of 32 analyst ratings, there are nine Buys, 14 Holds, and nine Sell recommendations. The average TSLA stock price target is $172.92, implying downside potential of 2.9%. Analyst price targets range from a low of $22.86 per share to a high of $310.00 per share.
The Bottom Line
Tesla is a fallen tech-savvy EV pioneer that hasn’t been able to harness tech’s powers to reverse course meaningfully in its stock, at least not yet. Whether it’s robotaxi and AI innovations or an unforeseen reversal in EV deliveries that help the stock power higher from here remains the big question.
Perhaps the price target range tells the story best. The Street-high target is at $310.00, while the low is at a mere $22.86. In short, it could go either way. And depending on the criteria used to evaluate the firm, your price target will vary greatly. Unless there’s more certainty with the name, I’ll have to stick to the sidelines, even though I’m intrigued by Cathie Wood’s 2029 target.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
