Tesla (NASDAQ:TSLA) has lost over 13.5% in the last month after a strong start to the year (up 52% year-to-date). However, the stock is currently trading at less than half of its all-time high of $414.50. The big question is, should you make the most of the dip, or are there graver underlying concerns that need attention? While the long-term growth story remains intact, the stock may see more downside due to macroeconomic and other temporary headwinds. Therefore, I am neutral on the stock and will wait to buy TSLA at a better price over the coming months.
The stock fell recently following Elon Musk’s lackluster commentary at Tesla’s Investor Day held on March 1, which left investors disappointed. Tesla is also facing investigations over battery and steering wheel issues. The subsequent recalls that followed added to investors’ woes.
EV Price Wars are Getting Worse
Tesla’s global slashing of prices for its vehicles started in January 2023. The price cuts on its top-selling models at the start of the year led to an instant boost in sales. Since then, the EV maker has announced five price cuts. For instance, last week, the company cut the prices of the performance versions of its most premium models — the Model S and Model X — by 4% and 9%, respectively.
There were two key underlying reasons that drove the price cuts. Reason number one was to boost EV demand, and reason two was to gain from tax credits announced in the Inflation Reduction Act. After Tesla’s slashing of prices in early January, Chinese peers like Xpeng Inc. (NASDAQ:XPEV) and NIO (NYSE:NIO) also engaged in price cuts soon thereafter. In addition, international automakers like Ford Motor (NYSE:F) and Toyota Motors (NYSE:TM) also cut the prices of their EV models.
While the initial round of cuts meant higher demand, the continuous rounds of price cuts directly signify that EV demand is suffering due to weak macro sentiment.
Tesla’s Investor Day Wasn’t Impressive
Tesla’s Investor Day held on March 1 was indeed disappointing. Contrary to expectations, Tesla did not give out much detail on the potential launch of its lower-priced new passenger car — a $25,000 variant announced two years ago.
A new, cheaper version could add an incremental revenue opportunity for Tesla. However, neither the production timeline nor other significant details were shared during the event. Rather, the company spoke at length about its new manufacturing business segment — home heating.
Meanwhile, CEO Elon Musk is extremely bullish on Tesla’s 4680 in-house battery. He expects it to be a game-changer as it will reduce costs significantly. The company plans to make its own 4680 batteries at various plants throughout the U.S. for use across its vehicles, including the Cybertruck. However, TSLA’s management stated that they are having production issues.
The launch of its Cybertruck has also been delayed, likely due to production and battery-related challenges. Currently, the company is looking at different partners from Asian countries to resolve its battery-related concerns as well as find solutions to make cheaper and more efficient batteries, ramping up its production simultaneously.
On a positive note, the firm stated its target of achieving a 50% reduction in costs. Further, Musk’s target of producing 20 million vehicles annually by 2030 was reiterated. Tesla has a long way to achieve that goal compared to 1.3 million vehicles sold in 2022. For reference, Toyota Motors (NYSE:TM) sold the highest number of vehicles in 2022 at 10.5 million. Perhaps, the first quarter deliveries report expected in April will give us a clearer picture.
Is Tesla Stock a Buy, According to Analysts?
As per TipRanks, analysts are cautiously optimistic about TSLA stock and have a Moderate Buy consensus rating based on 20 Buys, 10 Holds, and three Sells. The average Tesla stock price forecast of $212.89 implies 18.2% upside potential.
Tesla’s Valuation is High, but Big Investors Have Been Buying
In terms of its valuation, Tesla has mostly traded at a premium to its peers. However, the premium is justified given its favorable industry-leading position, diversified revenue stream, and established business model. TSLA is currently trading at a P/E ratio of 45x, at a significant premium to the peer group median (11.2x). However, it’s trading at lower multiples compared to its own five-year average of 181x.
Interestingly, insiders and hedge funds are buying the TSLA stock, nonetheless. According to an SEC filing, Tesla’s CEO Elon Musk exercised options to buy 10,500 TSLA shares on March 10. In addition, ace investor Catherine Wood, CEO of Ark Investment Management, also recently bought 69,356 shares of TSLA worth $12.6 million.
Conclusion: Consider TSLA Stock on Price Dips
Competition has certainly intensified in the EV industry, as seen with the recent price wars. While the long-term growth in demand for EVs remains attractive, short-term hiccups, like a slump in demand due to macro issues, higher interest rates, and rising car loan delinquencies, will likely weigh on the shares in the near term.
I will, therefore, wait to buy the stock based on my expectations that TSLA stock will go down further, primarily due to macroeconomic challenges.