Source: PaxForex Premium Analytics Portal, Fundamental Insight
Tesla's shares have been on a remarkable upward trajectory as of late, exhibiting a predominantly one-directional movement. The recent adoption of Tesla's North American Charging Standard (NACS) by Rivian Automotive, an electric vehicle company, provided yet another significant boost to this growth stock.
Over the past 30 days, Tesla's stock has skyrocketed an astonishing 49%. While shareholders undoubtedly find great satisfaction in their remarkable gains, some may be grappling with the decision of whether to retain their shares or not. The substantial surge in Tesla's stock value in such a short period prompts a prudent evaluation of the stock's valuation and the fundamental business aspects, to determine if it might be opportune for investors to secure some profits.
Investors are increasingly perceiving the adoption of Tesla's charging standard by various manufacturers as a significant turning point for electric vehicles, highlighting Tesla's leadership in the industry. Rivian Automotive's decision to integrate its vehicles with Tesla's charging network, starting next year, mirrors similar moves made by General Motors and Ford Motor Company in recent weeks.
The notion of an electric vehicle tipping point holds merit. Despite a slight contraction in global passenger vehicle sales in 2022, Tesla experienced a remarkable 40% year-over-year increase in deliveries. This robust growth rate carries multiple implications for investors. Firstly, with total deliveries surpassing 1.3 million in 2022, Tesla has firmly established itself as a major player in the industry. Secondly, this achievement is even more impressive considering the uncertainties of the macroeconomic climate and the significant challenges faced in the supply chain throughout the year.
Tesla's momentum has continued into 2023, with a 36% year-over-year increase in deliveries during the first quarter. While the company had to substantially lower its prices to counteract the potential demand slowdown caused by rising interest rates, the ability to do so convincingly suggests the arrival of an electric vehicle tipping point. Tesla's production of more affordable fully electric cars in increasing volumes, coupled with access to a shared charging standard, appears to be a recipe for a meaningful mass-market adoption tipping point.
Although there are positive factors supporting a bullish outlook on Tesla's business, concerns arise regarding the stock's valuation. With a price-to-earnings ratio of 79, investors are anticipating robust business growth for the foreseeable future. While recent performance suggests that Tesla can meet these expectations, it's important to recognize the highly competitive nature of the automotive market. Investors should incorporate the risks associated with the capital-intensive and fiercely competitive industry into their valuation models, including the potential for Tesla's earnings to grow at a slower pace than anticipated.
According to investment research and stock analysis firm New Constructs, the market's expectations regarding the duration of Tesla's competitive advantage, as indicated by its ability to generate higher returns on invested capital compared to its weighted average cost of capital for new investments, may be overly optimistic. New Constructs refers to this period as the "growth appreciation period." The firm believes that investors' expectations for the duration of Tesla's growth appreciation period are too lofty, leading to potential errors in the market's forecasts.
While this perspective represents the opinion of one analyst, and investors should conduct their own thorough analysis, New Constructs raises a valid point. The current share price of Tesla incorporates exceedingly high long-term expectations for the business. Considering the expensive valuation, it may be prudent for some Tesla shareholders to sell a portion of their holdings.
As long as the price is above 242.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 258.51
- Take Profit 1: 276.00
- Take Profit 2: 295.00
Alternative scenario:
If the level of 242.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 242.00
- Take Profit 1: 223.00
- Take Profit 2: 207.00
