I am neutral on Tesla (TSLA) as it has a very strong moat, rapid growth momentum, and a compelling technological edge that should serve it well moving forward.
Furthermore, analysts are generally bullish on it and the average price target implies upside potential over the next 12 months. On the other hand, it trades a valuation multiple premium.
Tesla is a global home power storage, car battery, solar panel, and EV manufacturer and innovator. It also has a growing artificial intelligence branch which is developing robots and various autonomous technologies.
It enjoys a wide global following and is considered the leading player in the rapidly growing EV industry. Much of its success is attributed to its charismatic and visionary CEO Elon Musk.
Strengths
Between its rapidly increasing economies of scale, top-tier talent pool in its engineering team, world-class CEO, sector-leading technology, and massive data advantage which it is leveraging to develop advanced autonomous technologies and robotics, TSLA has a very strong competitive position in its industry.
Given its proven operational and technological superiority compared to rivals, TSLA has a very high ceiling in its potential for innovation and growth. As a result, it is viewed as arguably the greatest car company and one of the greatest technology companies on earth.
Recent Results
In Q4 2021, TSLA generated operating cash flow of $2.8 billion, leading to a $1.5 billion increase in cash and cash equivalents sequentially to $17.6 billion.
The company also reported a $2.6 billion GAAP operating income alongside a 14.7% operating margin in Q4, while net income was $2.3 billion on a GAAP basis and $2.9 billion on a non-GAAP basis.
The company also delivered a record number of vehicles in 2021 at nearly 1 million (0.94 million) and posted an annualized vehicle production run-rate of over 1.22 million in Q4.
Valuation Metrics
TSLA stock looks richly priced at the moment. Its EV/EBITDA ratio is high relative to its history at 42.8 compared to its historical average of 41.1times.
Moreover, its P/E ratio is also very elevated at 79.5. With mounting competition in the EV space, TSLA’s ability to grow into this massive valuation is going to be tough to execute on.
Wall Street’s Take
According to Wall Street analysts, TSLA earns a Moderate Buy analyst consensus based on 15 Buy ratings, seven Hold ratings, and six Sell ratings in the past three months. Additionally, the average TSLA price target of $1,068.40 puts the upside potential at 28.5%.
Summary and Conclusions
TSLA stock is backed by robust growth momentum, formidable competitive advantages, a massive growth runway, a visionary and world-class CEO, and a strong global following and fan base.
On the other hand, its valuation looks a bit stretched relative to its historical levels, and even more so when taking into account the increasing competition in the EV space.
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