Source: PaxForex Premium Analytics Portal, Fundamental Insight

The performance of Tesla stock over the past decade has been exceptional. In the last ten years alone, the stock has risen nearly 23,000%, making it one of the most dynamic companies on the market during that period. The company has expanded its electric car business, its market capitalization exceeds $1 trillion, and CEO Elon Musk has become the richest man in the world. Things have been shaping up in Tesla's favor lately. But for shareholders, the future doesn't look so bright.

Let's break down why Tesla is one of those companies that analysts advise avoiding in 2022.

Let's start with what Tesla has done with its business over the past five years. It recently delivered a record 936,000 cars in 2021, up from 30,000 in 2017. Revenues have followed suit. Over the past five years, 12-month sales are up 448% as Tesla has expanded its manufacturing business around the world. What's more, the company has recently started to make steady profits, with an operating income of $4.45 billion in the past 12 months.

In 2021, the company's sales should exceed $50 billion, and in 2023, analysts predict that revenue will approach $100 billion. So why is Tesla stock worth avoiding in 2022? Two reasons: the complexity of production and the expectations built into the stock.

Bending steel is difficult. Building and selling cars is difficult, and it costs a lot of money. Tesla is not immune to these costs, and they will make it difficult to return cash to shareholders in the long run - which is how shareholder value accumulates. For example, Tesla has spent $7.3 billion on capital expenditures in the past 12 months, only slightly less than the $9.9 billion generated in cash flow from operations.

As a result, free cash flow over the last 12 months was only $2.6 billion. With a market capitalization of $1.05 trillion, this price to free cash flow (P/FCF) ratio is over 400. To make matters worse, Tesla only generated this "free cash flow" because its accounts payable and accrued liabilities increased by $2.7 billion this year. That's money Tesla will eventually have to pay suppliers and employees, making the $2.6 billion in cash it generated unavailable for return to shareholders.

You might ask: won't capex shrink after Tesla finishes expanding its business? That's unlikely. Toyota, the world's largest automaker, has spent nearly $35 billion on capital spending in the last 12 months, and it is building capacity at a much slower pace than Tesla. If Tesla starts delivering more than 10 million cars a year (as Toyota did in 2019), it will have a constant need for capital investment, which will limit the amount of true free cash flow that can be paid out to shareholders.

Given the complex nature of automotive production, most stocks in this sector are trading at very low earnings multiples. It is likely to happen with Tesla at some point. As an example, consider Toyota. This company, which had $281 billion in revenue in the last 12 months, had $28.2 billion in net income. Its market value is $289 billion, or about a price/profit ratio of 10. It is so low because the company's investors realize that they would have a hard time paying out excess cash relative to its returns.

On the other hand, Tesla has a market value of $1.056 trillion and a past net income of $3.47 billion. Could Tesla ever reach an annual net income of $28.2 billion? Probably. But investors should understand that with a market value of more than three times that of Toyota, this is already built into the stock price.

If you own Tesla right now, you should have a reasonable thesis as to why the company will be worth more than $1 trillion in the future, and probably $2 trillion in ten years if you want a decent compound annual return. You might argue that Tesla is setting the stage for that with autonomous driving, battery technology, and solar panels. But these are all either small and capital-intensive ventures (solar panels and batteries) or speculative business plans with no immediate prospect of becoming commercially viable (autonomous driving). Can these segments help Tesla achieve positive profits over the next decade when its market value is already estimated to dominate the automotive sector?

Tesla's market value is too high compared to the opportunities before it and its current financial position.

As long as price is below 1002.00, follow the recommendations below:

• Time frame: D1
• Recommendation: short position
• Entry point: 943.00
• Take Profit 1: 885.00
• Take Profit 2: 816.00

Alternative scenario:

If the level of 1002.00 is broken-out, follow the recommendations below:

• Time frame: D1
• Recommendation: long position
• Entry point: 1002.00
• Take Profit 1: 1050.00
• Take Profit 2: 1175.00