Source: PaxForex Premium Analytics Portal, Fundamental Insight
Tesla's second-quarter results, which concluded on June 30, revealed revenue of $24.9 billion and adjusted earnings per share of $0.91—both significantly exceeding expectations set by Wall Street. By that juncture, the stock had surged an impressive 137% in 2023.
However, the narrative changed drastically after the earnings announcement on July 19, as Tesla's shares plummeted by 21% by August 16. Evidently, shareholders are grappling with a sense of disappointment.
With this decline, is there now a promising chance for investors to consider purchasing Tesla shares at a lower price?
Tesla experienced a remarkable 47% year-over-year surge in sales during the second quarter, with an even more impressive 83% rise in vehicle deliveries—a notable achievement in the face of economic uncertainty. However, investors didn't seem overly focused on these metrics.
The focal point for shareholders was the modest 7% increase in gross profit coupled with a 3% decline in operating income. This decline in profitability led to a significant contraction in Tesla's margins compared to the same quarter in 2022. This diminished profitability, an undesirable outcome for any investor, was a consequence of multiple price reductions implemented by the company over the past several months.
Complicating matters was Tesla's recent declaration of plans to introduce more affordable versions of its premium S and X models. These shorter-range versions are priced $10,000 lower than their premium counterparts. Additionally, the company is embroiled in aggressive price competition in the Chinese market.
While the rationale behind these strategic decisions is logical—CEO Elon Musk seeks to expand the unit volume to augment market share and gather more data for enhancing full self-driving (FSD) capabilities—engaging in price wars threatens to further erode profitability. This underscores the intensity of competition in the electric vehicle (EV) sector, which Tesla played a pivotal role in bringing to the mainstream.
Dedicated long-term believers in Tesla's stock exhibit less concern about short-term margin fluctuations and instead concentrate on the company's potential to generate substantial future profits and cash flow. A pivotal development is Tesla's endeavor to create an AI supercomputer, known as Dojo, which aims to enhance its autonomous driving capabilities by refining neural network training for improved decision-making across diverse driving scenarios. Such advancements could substantially reshape the financial outlook.
Should full self-driving (FSD) become a reality, Tesla's plan to introduce a global fleet of autonomous "robotaxis," capable of operating around the clock, might lead to increased revenues compared to the present scenario. This bold perspective is shared by Cathie Wood of Ark Invest, who envisions Tesla's valuation skyrocketing to $7.9 trillion by 2027. Although the stock has experienced a more than 20% decline, its forward price-to-earnings ratio of 66 underscores sustained investor optimism. With a market capitalization exceeding $700 billion, Tesla stands as one of the world's largest companies. However, this substantial valuation could deter some investors due to the limited potential for further upside.
Balancing this is Tesla's undeniable track record of innovation and disruptive potential. The realization of CEO Elon Musk's vision for widespread FSD adoption holds the key to unlocking considerable value, potentially propelling both the company and its stock to unprecedented heights.
Investors must carefully consider the feasibility of these transformative possibilities before making a decision to invest in Tesla's shares today.
As long as the price is above 210.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 230.47
- Take Profit 1: 265.00
- Take Profit 2: 297.00
Alternative scenario:
If the 210.00 level is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 210.00
- Take Profit 1: 188.00
- Take Profit 2: 165.00
