The global EV market leader has had a flat stock price since the start of the year, a far cry from last year’s performance, but do earnings represent change?
In 2020, Tesla’s (NASDAQ: TSLA) stock price surged more than 700%. This year, however, after continuing its upward momentum in January, the stock is down over 3% year-to-date (YTD). The company beat both EPS and vehicle delivery estimates in Q1 2021 by $0.07 and 100,000, respectively, which shows that the demand is still there for its products. Are investors getting nervous about Tesla’s high overvaluation or the number of competitors emerging in the Electric Vehicle (EV) space? Whatever the case may be, the stock is available at a discount, so is now the time to buy?
The bull case for Tesla
Tesla is regarded as the first true mover in the EV sector, having been built from the ground up as a mass manufacturer of relatively affordable vehicles; the prices of which will drop as battery tech advances and becomes less expensive. Further aiding this endeavor is Tesla’s opening of a new battery ‘gigafactory’ in Texas later this year. The company’s growth cannot be ignored and its record half-million vehicle delivery in 2020 is expected to be exceeded this year by over 50%. Furthermore, Tesla believes that deliveries will grow over an annual rate of 50% in the next few years. Last quarter also marked another record for the company as it recorded over $1 billion in non-GAAP net income.
Autonomous Vehicles (AV) are the future of the electric sector (projected 12% market penetration by 2030) and no other EV competitor has the amount of data that Tesla has collected for this tech over the years from their vehicles. The AV market is expected to be worth nearly half a trillion dollars by 2030 and with Tesla’s clear competitive advantage and 18% global market share in the EV space, I reckon the company will get a nice portion of that sum. This is also serving the company well in its insurance endeavors, which analysts are projecting to be worth a quarter trillion dollars in revenue for the company by 2030. As for its core business, along with its new Texas factory, Tesla will be erecting another factory in Germany this year as well.
The bear case for Tesla
Yes, Tesla’s stock price is relatively ‘discounted’ but it is still ludicrously expensive. The company’s market cap is nearly $700 billion, which is higher than the seven biggest carmakers combined. Tesla’s stock price is trading at 170x forward P/E, while the S&P 500’s is only 22x. Additionally, actuaries determined that Tesla has only a 45% chance of making its future profit projections, so that adds further credence to its overvaluation.
Competition is coming from not only new entrants in the space, like NIO but by legacy automakers as well. In fact, in the first 9 months of 2020, Volkswagen, Renault-Nissan-Mitsubishi, and Hyundai-Kia all sold more EVs in Europe than Tesla. Volkswagen is releasing 70 new EV models by 2030 and General Motors is expected to have 30 models on the market by 2025. These companies have the financial power and customer base to pose a real threat to the rising automaker. And finally, there’s Elon Musk, Tesla’s ‘Technoking,’ who has been known to exaggerate a claim or two in the past, who may finally lose credibility one day amongst investors.
So, should I buy Tesla stock right now?
Yes. Tesla manufactures sleek automobiles with bleeding-edge features and auto-updating technology. The company is building new factories, reducing battery costs, and delivering automobiles to meet with growing demand. With its foray into AV and insurance, which are projected to be huge revenue-boosters for the company, I would say it’s a safe investment, but I would wait for another dip.
A MyWallSt subscription gives you access to over 100 market-beating stock picks and the research to back them up. Our analyst team post daily insights, subscriber-only podcasts and the headlines that move the market. Get your free trial now!
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.