Source: PaxForex Premium Analytics Portal, Fundamental Insight
Tesla has burst into the auto industry and single-handedly brought electric cars to the forefront.
Forced to make the decision to change or stay behind, other automakers are now racing to produce their own models of electric cars, thereby challenging Tesla's control over the future of the industry.
Tesla stock has made huge profits in recent years, though bears have always roared loudly, convinced that the company is overvaluing its future technology and that CEO Elon Musk is not a reliable leader.
So is it okay to buy Tesla stock today? To answer that question, we'll look at the arguments of the "bulls" and "bears" in the debate on this topic.
Tesla created the electric car market and still dominates it in the U.S. Although the company will face increasing competition from both older competitors and pure EV companies such as Rivian and Lucid Group, these companies will take time to ramp up production, which means Tesla should continue to lead the EV market for the foreseeable future.
In the first three quarters of 2022, Tesla accounted for 65% of the 525,000 electric vehicles registered in the United States, and it owned 86% of the luxury EV segment. In second place in total electric car sales was Ford, with a share of only 7%. In other words, despite the hype surrounding the emerging competition, Tesla is still ahead of its competitors.
Tesla's Model Y and Model 3 were sales leaders in Europe until October of this year, and the company maintains a significant presence in China, the world's largest electric car market but one in which consumers prefer cheaper electric cars.
Tesla's track record of fulfilling orders and wide profit margins should also give investors confidence for the future, as the company posted a 17.2 percent operating margin in the third quarter.
The company also intends to increase production by 50% annually in the coming years, and if it can achieve that, investors should expect a similar increase in revenue and profits.
Finally, Tesla stock is trading at its lowest earnings ratio in the company's history after falling sharply over the past few weeks as investors were disappointed by Musk's Twitter adventures. If he can allay these fears and the company can post strong Q4 results, Tesla could start 2023 with a strong rebound.
At the same time, the bearish arguments for Tesla have to do with its expensive valuation. Tesla stock trades at a price-to-earnings (P/E) ratio of 42.66, which is higher than General Motors, Ford Motor Company, and Toyota. These are car companies with decades of experience building and selling cars. Of course, Tesla only sells electric cars, while other companies sell gas and electric cars.
And Tesla is growing much faster than the aforementioned competitors. Tesla's compound annual revenue growth over the past decade has been 74.6%. However, this happened at a time when Tesla had few competitors in the electric car industry. With the emergence of several competitors, consumers now have many options when buying an electric car. This is doubly bad news for Tesla.
First, EV buyers are more likely than in years past to buy a model that is not a Tesla. Second, competitors are buying up the materials Tesla needs for production, which increases the cost of goods sold and limits the number of units produced. This is all well and good, and it is suspected that Tesla will be one of the leaders in the EV industry within a few years, but it is not a company for which one would want to pay a significant premium to buy. That Tesla sells for more than the other automakers is reasonable, but trading at a P/E ratio more than 4.5 times that of Toyota and 8.0 times that of Ford is overkill.
As long as the price is below 165.00, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 122.44
- Take Profit 1: 110.00
- Take Profit 2: 90.00
Alternative scenario:
If the level of 165.00 is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 165.00
- Take Profit 1: 180.00
- Take Profit 2: 196.00
