Since taking the reins of the electric vehicle manufacturers in 2008, Tesla (TSLA) Chief Executive Elon Musk has defied all odds and regularly lived up to the hype. Hype, being the keyword here as we will look at the stock price of Tesla.
Musk’s cult following may have led some people to invest in Tesla despite not having adequate knowledge about the stock. Supporters believe that Musk is selling a ticket to the future as well as automobiles.
Is Tesla stock a “buy now” following a better-than-expected second-quarter profits announcement, or is there a ‘chip warning’ signal that the chip shortage affecting the car sector remains serious?
Tesla stock fell amid pressure as the U.S. safety auto regulator announced an inquiry into the company’s Autopilot hands-free driving technology. The stock price of the electric vehicle manufacturer plummeted by more than 5% as a result of the announcement. The inquiry is one of many issues that Tesla is dealing with as it ramps up manufacturing and expands its foreign footprint.
This isn’t a new concept for investors. Tesla is a very volatile stock, with investors used to large surges and swoons and many short bets on the company’s inflated prices. Musk himself has even stated that the stock is overvalued at times.
However, this sudden decline in Tesla’s stock price makes you wonder about the volatile nature of this stock and, in truth, is evidence of its volatility. The current level of volatility around Tesla Inc. makes developing a cohesive trading strategy for the company difficult.
The Disastrous Fundamentals
Ferragu is more optimistic about Tesla’s artificial intelligence product development following its AI Day last week, adding that the presentation made New Street more comfortable with its positive outlook. Because of the company’s sophisticated technology, he believes the growth stock will merit a price-to-earnings multiple of 50 to 100 in the years ahead.
Despite the fact that Tesla now has a P/E ratio of 387+ (at the time of writing), analysts estimate the automaker’s profits per share will rise at a compound annual rate of approximately 52 percent over the next five years. It seems optimistic, to say the least.
The stock has a 12-month price target of $900, according to the analyst.
Tesla has forecasted a 50% annual growth rate in vehicle deliveries in the next few years, without defining when that growth will decrease. Management also expects a considerable increase in operating margins. These two variables would easily result in an EPS increase of 50% or more.
If Tesla is accurate in its bullish forecast and analysts are correct in their hopeful targets that Tesla should be able to command P/E ratios of 50 to 100 in five to ten years, then today’s Tesla stock prices might be an excellent purchasing opportunity.
However, investors should bear in mind that such positive expectations and overestimation of these fundamentals might lead to a slew of problems, ranging from competitive hurdles to probable production, supply concerns, and other unexpected diversions.
Competition Has Increased and Is Quickly Increasing Further
Tesla is undoubtedly the most famous manufacturer in the electric car space, mainly because of CEO Elon Musk’s quirky personality and innovative vehicles like the Cybertruck.
Both domestically and internationally, many companies are positioning themselves to compete with, and maybe even beat, the eccentric entrepreneur at his own game. Traditional automakers such as Ford Motor Company ( F) and General Motors (GM) bring major competition for Tesla. The company had an estimated market worth of $680 billion in July 2021, compared to $57 billion for Ford Motor and $82 billion for General Motors.
If we look outside the U.S., buzzwords “Tesla” and “China” have been coupled with potentially world-changing innovation and growth. So you know it’s worth paying attention when a Shanghai-based automotive company emerges amid rumors of it becoming China’s Tesla. That company is NIO.
In the second quarter, NIO shipped 21,896 electric vehicles, increasing 112% year over year. Its fast-increasing delivery numbers and significant financial indicators have made it a practical choice for customers and stock investors actively looking for different options than Tesla.
Another concern is whether this increase can be sustained and investor demand continues at these stratospheric levels. NIO is undeniably a high-risk investment, but the company’s drive to breaking new ground, paired with its incredibly cheap pricing, makes it impossible to dismiss.
Tesla said during its 2021 second-quarter earnings call that production of the Cybertruck would begin in 2022. It also intends to start manufacturing an electric semi-tractor truck next year. Tesla will face increasing rivalry in the electric pickup industry, as both Ford and GM are developing electric trucks. Both companies stated that their iconic trucks would be available in complete electric form in 2021.
GM has announced that a long-range 400-mile Chevrolet Silverado EV would be built, although no release date has been set. Ford has announced that the Ford F-150 Lightning, an electric vehicle with a range of up to 300 miles, will be released next year. Tesla has stated that the Cybertruck will have a range of 250 miles or more. So, it is not an easy home run for Tesla. Is it?
Expansion Plans (That Often Go Awry)
Tesla has significantly increased its manufacturing capacity. Over the next ten years, Musk hopes to produce 20 million electric automobiles. This is more than twice the current output of other automotive giants. As a result, it’s on a quest to increase its production capacity significantly.
However, such domination might be fleeting.
When Tesla begins producing cars in Germany, it will compete in the electric vehicle market with three well-known German brands: Volkswagen Group ( VWAGY), BMW (BMWYY), and Daimler AG’s Mercedes-Benz division (DDAIF). In addition to its Chinese rivals, these German and U.S. carmakers are major competitors. It seems like the whole car manufacturing world has Tesla’s electric market in its sights.
The Big Short Investor is Also All-in Against Tesla
Michael Burry’s bet against Tesla has increased. He has an imposing record with betting against the market trends. Burry is most known for his huge bet against the housing boom in the United States in the mid-2000s, which was popularized in Michael Lewis’ book “The Big Short.” He also aided the GameStop (GME) buying frenzy early this year by investing in the video-game store and pressing its board to make adjustments in 2019.
According to regulatory filings, Burry’s Scion Asset Management had bearish put options on roughly 1.1 million shares of Tesla worth $731 million at the end of June 2021, up from 800,000 three months earlier.
Elon Musk and his electric vehicle firm have been accused of overpromising and under delivering by the investor on several occasions. He went on to compare the Tesla hoopla to the dot-com and housing bubbles, telling shareholders to “enjoy it while it lasts.” He also predicted that Tesla’s stock would crash because its value is unsustainable.