Electric car maker Tesla (TSLA) has had its share of ups and downs lately. However, the company’s recent rally pushed its market cap above $1 trillion for the first time. Tesla’s collective battery has a new charge with the latest news, but for anyone considering buying in, I suggest waiting.
I’m mildly bearish on Tesla, and you’ll see why directly. (See Analysts’ Top Stocks on TipRanks)
Tesla stock suffered a couple of false starts in 2021. Subsequently, its stock has been on the rise, surpassing $1,000 per share. Much of January into February saw the company struggle to crack the $900 per share mark. After the first week of February, Tesla started its first plunge for the year, dropping under the $600 per share mark in early March.
It spent a couple days there until its first recovery. That recovery saw Tesla struggle to crack the $800 per share mark, and ultimately fail to do so, dropping back to under $600 once more. After that, it began a slow rise upward, followed by a rapid rise to where it sits today. (See Analysts’ Top Stocks on TipRanks)
Two bits of news gave Tesla its recent surge. The first bit was Tesla raising prices on certain models, including its Model S and Model X sedans. The Model S is Tesla’s longest-range model. The Model X is also regarded as a luxury brand. Therefore, Tesla is hiking prices on models that were already pricey to begin with.
The second, meanwhile, revolved around Hertz (HTZZ). Hertz placed the biggest order that Tesla has ever seen, calling for 100,000 electric cars to join the company’s rental fleet. The move would make Hertz a much greener operation and put a lot more green in Tesla’s pockets.
Wall Street’s Take
Wall Street’s consensus rating for Tesla is a Hold. Based on the projections of 27 analysts that have 12-month price targets on the company issued in the last three months, 12 consider it a Buy. Eight analysts, meanwhile, rate Tesla a Hold, and the remaining seven rate it a Sell. Tesla’s status as a Hold goes all the way back to last October.
The average Tesla price target of $781.82 implies 26.8% downside potential. It’s important to note that the average price target sits between a massive range. Currently, analysts have a high target of $1,200 and a low target of just $150.
The Best Has Already Come
Tesla is doing great. Its biggest order ever just hit. Chinese sales are still brisk. So why am I lightly bearish? Why is Wall Street averaging a Hold with almost as many outright sellers as holders? The answer is simple. Tesla’s best may have already happened.
Tesla has been on a rapid upward climb for the last couple of years now. The company has already pushed well past its average price target and is making plays for its highest target. That $150 price target seems almost like a joke in light of what’s been seen so far this year.
More importantly, Tesla will be able to continue operations for some time. The need for replacement parts for these cars should keep Tesla viable for years. Tesla’s work in battery technology can’t hurt either.
With the power grid increasingly unreliable, as we’ve seen over the last few years, having a backup plan isn’t a bad idea. Tesla is in a great position to supply that backup. The deal with Hertz, for example, calls for access to Tesla’s supercharger network. Hertz is also building its own such network to supplement that of Tesla.
The problem here is one of sustainability. While Tesla will be viable for years, even decades to come, the idea that it will sustain these prices is more of a long shot. Tesla is trading well over its average price target. It’s making a serious play for the top of the range. Buying in now increases the likelihood of a downward ride later on to a more natural equilibrium point.
Concluding Views
Tesla’s best days are likely behind it. The initial gee-whiz frenzy of Tesla’s new tech has worn off. The latest advances aren’t producing that effect anymore either; let’s not forget the Cybertruck window incident. Sledgehammers and “base weakening” notwithstanding, that was still a black eye for Tesla.
Tesla’s days of huge stock surges are likely also behind it. We should be pretty well near the top as far as Tesla goes, so anyone planning to buy in now may want to hold off. Tesla will be a going concern for a long time to come. It’s built a very effective user base over the years. Servicing that base with new cars and new parts should be serious business.
The euphoric rise we’ve seen—and are still seeing—should be coming to an end, though. That’s enough to keep me out of Tesla until the equilibrium hits, and leaves me bearish accordingly.
Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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