Source: PaxForex Premium Analytics Portal, Fundamental Insight
The Tesla stock has experienced significant volatility throughout 2023, fluctuating from a low of $108 to a high of $293. Presently, it hovers around $215 following a consistent decline over recent months. Concurrently, the sentiment surrounding Tesla's stock has transformed, attributed to the company's adjusted strategy within the electric vehicle (EV) market.
Historically, Tesla boasted the best margins in the industry, delivering robust growth and superior profits to shareholders. However, a shift in Tesla's approach, wherein it now sells vehicles at a lower price to secure a larger EV market share amid competition from traditional automakers, has prompted some investors to reassess their positions.
The primary question for investors revolves around Tesla's valuation. While Tesla dominates the US EV market share, the debate centers on whether the company is justifiably valued at nearly $700 billion, especially when compared to the combined worth of legacy automakers such as Toyota, Ford, and General Motors, which is less than half of Tesla's valuation.
Previously, the buy-side argument emphasizing Tesla's superior gross margins had merit, as no other automaker, except premium ones like Ferrari, came close to Tesla's levels. However, the landscape has changed with increasing input costs and a reduction in vehicle prices, causing Tesla to relinquish its crown in this regard. Investors now face the challenge of reassessing their stance on Tesla stock given these shifts in the market dynamics.
The current evaluation of Tesla raises questions, with critics on the sell side asserting that Tesla no longer justifies its premium valuation. Trading at 69 times trailing earnings, a sharp contrast to Toyota's 9.1 and Ford's 6.4, Tesla would need a substantial correction to align with industry peers.
Counteracting this perspective, proponents on the buy side argue against short-sightedness. Tesla's management contends that the recent price cuts are temporary adjustments necessitated by the challenges of operating in a high-interest-rate environment, emphasizing that these measures do not reflect a fundamental shift in strategy. Unlike many automakers, Tesla does not conduct loans in-house.
The pivotal factor to monitor is the impact of potential future interest rate cuts. If Tesla's margins rebound, supporters can vindicate their optimism; however, if improvement is not realized, critics will assert validation of their concerns.
Yet, the assessment thus far focuses solely on Tesla's current operations. Beyond its existing endeavors, Tesla is engaged in ambitious projects such as full self-driving (FSD), robotaxis, and diverse car models targeting various demographics. While proponents view these ventures as potential game-changers, the skeptics on the sell side remain unconvinced, urging investors to scrutinize Tesla's present offerings rather than placing undue reliance on uncertain future developments.
In contemplating what action investors should take regarding Tesla stock, a cautious "hold" stance is suggested. Despite reservations about the short-term margin decline, confidence persists in Tesla's product superiority compared to legacy automakers. The anticipation is that price adjustments will be well-received once interest rates decline. Additionally, while acknowledging Tesla's promising pipeline of products, it is emphasized that these are yet to be implemented and should not be overvalued at present.
Tesla's stock has historically divided opinions, and with skeptics gaining ground in 2023, the debate has become more balanced. The trajectory of Tesla's stock price hinges significantly on its gross margins, with any further decline in this metric likely to exert downward pressure. Conversely, if margins show improvement in 2024, the prospect of Tesla approaching a $1 trillion valuation should not come as a surprise.
As long as the price is above 230.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 241.91
- Take Profit 1: 255.00
- Take Profit 2: 275.00
Alternative scenario:
If the level of 230.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 230.00
- Take Profit 1: 220.00
- Take Profit 2: 210.00
