Source: PaxForex Premium Analytics Portal, Fundamental Insight
Despite a year-to-date rally of 73% in 2023, Tesla's stock is still considerably lower than its all-time high of $410 achieved in late 2021. The current economic climate, with high levels of inflation and interest rates, is making it difficult for the auto industry. However, Tesla's scale and profitability suggest that it has the potential to rebound even stronger than before. Let's delve deeper into this topic.
- TSLA is all set to succeed in price wars
According to Goldman Sachs analysts, the electric vehicle (EV) market is expected to make up a significant 61% of global car sales by 2040, with the figures rising to over 80% in the US and Europe. For Tesla, this presents an opportunity to dominate the industry and it is taking measures to stay ahead of its competitors. In April, Tesla implemented broad-based price cuts for its Model 3 and Model Y in Asian and European markets. This followed a 20% global price reduction at the beginning of the year. While some investors view the discounts as a sign of desperation, they may be part of Tesla's strategy to increase its market share in the long run, given the high level of competition. The company's rivals such as Rivian and Lucid are reportedly losing money, and the price wars are expected to protect Tesla's lead. Tesla's management has a target to cut prices on next-generation cars by 50% by unlocking manufacturing efficiencies. Thus, the battle for dominance in the industry is just beginning.
- Pay attention to Tesla's energy business
During Tesla's 2023 investor day, the company's management shared a vision of expanding beyond the automobile sector. The presentation outlined ambitious goals such as eliminating fossil fuels from the power grid, electrifying non-conventional vehicles, and developing more efficient energy storage and transfer systems. However, these plans are more than just words for Tesla. In Q4, Tesla's energy generation and storage business reported a staggering 90% increase in revenue to $1.3 billion, surpassing the 35% growth rate of its automotive sales. Orders for Tesla's Powerwalls and Megapacks, which store solar energy for homes and reduce businesses' dependence on the grid, are soaring. Tesla's management anticipates continued strong demand and is increasing production at its dedicated battery-pack factory in California. While energy currently represents a small fraction of Tesla's business, its impressive growth rate suggests that it could become a major revenue source and diversification strategy for the company in the long run.
- The valuation is finally fair
Historically, investors in the stock market have had to choose between a company's quality and its valuation. For Tesla, this decision was difficult, as its exceptional fundamentals were often overshadowed by its previously exorbitant stock price. In late 2020, the company's market capitalization surpassed that of the five largest automakers combined, and its price-to-earnings ratio reached an astronomical 1,120. The good news is that Tesla's days of being overvalued appear to be behind it. Despite its P/E ratio of 48 is more than double the Nasdaq Composite's average, it seems reasonable considering Tesla's rapid growth rate and strong economic position against its competitors. Long-term investors still have an opportunity to invest in Tesla's continued success.
As long as the price is above 155.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 159.86
- Take Profit 1: 177.00
- Take Profit 2: 200.00
Alternative scenario:
If the level of 155.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 155.00
- Take Profit 1: 137.00
- Take Profit 2: 123.00
