Shares of electric vehicle (EV) pioneer Tesla (NASDAQ:TSLA) are taking a breather alongside the broader basket of high-tech plays in this late-summer cool-off. The stock is now down just over 20% from its July 2023 peak and around 43% from its 2021 all-time high. As negative momentum builds on itself, it could be time for investors who are still up to take profits rather than double down on a name with a valuation that’s becoming increasingly difficult to justify.
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Further, as macro headwinds stand to worsen, there’s a good chance Tesla stock’s losing streak could extend further, perhaps to January’s ominous lows of around $113, as valuations in the tech scene look to contract yet again.
For now, I have to be bearish on the stock while it’s trading for around $233 and change per share. Not only are tech valuations coming down again, but Tesla’s status as a top tech innovator could come into question again if it’s unable to launch new game-changing technology.
Sure, the robotaxi opportunity, which innovation investor Cathie Wood has factored into her financial models, could possibly justify Tesla stock’s premium price tag. Until recently, such an opportunity has been viewed as a tad too forward-looking.
After all, Wood is an innovation investor who’s been known to look farther into the future than most other analysts on Wall Street! Still, even if self-driving tech has improved by leaps and bounds in recent years, there are still a lot of regulatory hurdles to jump through before mass adoption can be achieved. In that regard, it may be too early in the game to factor in the potential of autonomous driving when it comes to Tesla stock.
The Robotaxi Market May be Coming, but It’s Likely to be Crowded
Given recent advances in artificial intelligence (AI) and the green light for select robotaxis to roam in San Francisco, upbeat robotaxi projections may not be nearly as outlandish as previously thought. That said, it’s still hard to tell which companies will dominate the roads and what profitability prospects will be like down the road. In other words, even if robotaxis are destined to roam the roads gradually over the next few years, Tesla is unlikely to be the sole option for those seeking a driverless lift.
Personally, I’d be more willing to put my money in Alphabet’s (NASDAQ:GOOGL) Waymo than Tesla. Why? Because Alphabet is one of the world’s top AI innovators that can tackle a broad range of complicated problems, including self-driving. The stock also goes for a cheaper multiple at 27.12 times trailing price-to-earnings, well below Tesla stock’s multiple of over 67.
As Tesla looks to do its best to build superior self-driving technology, it’ll need to play defense as traditional EV makers catch up. General Motors (NYSE:GM) has already made major strides to catch up to Elon Musk’s EV empire. Only time will tell if Tesla can maintain the pace of innovation to keep users from considering alternative options with their next EV purchase. If it can’t keep the innovations coming quickly, its moat could quickly erode, and its stock could find it difficult to shift gears out of reverse.
Competition Still Looks Quite Fierce
Unlike the chip industry, which can be notoriously difficult to compete in when playing from behind, the EV market could see numerous underdogs making major ground on the leaders. Old-school automakers like GM have reinvented themselves in electrifying fashion over the past several years and are in a spot to claw back market share over the next decade or so.
Up ahead, Tesla’s Cybertruck launch will put the firm in the driver’s seat of the pickup market. Some analysts, like Ben Kallo of Baird, view the Cybertruck as a potential catalyst for the stock. With a potential recession on the horizon, I’m not so sure the offering will be able to make much of a dent in a market that’s been dominated by traditional automakers that are also looking to electrify their fleets.
As General Motors and other auto rivals step up the competition on the EV and autonomous-driving front, Tesla stock could find itself enduring another one of its vicious valuation resets. Tesla’s 67 times P/E multiple is still miles above the auto manufacturer industry average P/E multiple of 12.6.
Is Tesla Stock a Buy, According to Analysts?
On TipRanks, TSLA stock comes in as a Moderate Buy. Out of 28 analyst ratings, there are 10 Buys, 13 Holds, and five Sell recommendations. The average Tesla stock price target is $253.77, implying upside potential of 8.8%. Analyst price targets range from a low of $24.33 per share to a high of $350.00 per share.
The Bottom Line on Shares of Tesla
Tesla stock is a long way from its peak, but shares still look frothy at these levels. Pending a market-leading robotaxi service or any other technological breakthrough, I find Tesla stock’s valuation to be too rich for even the most aggressive growth investors.
