Automakers recently took a left uppercut to the chin, along with the broader market. Undoubtedly, it’s not an easy time to go on the hunt for auto stocks, with a recession likely just months away. Nonetheless, let’s use TipRanks’ Comparison Tool to see where Wall Street stands on the two EV stocks — Tesla (NASDAQ: TSLA) and General Motors (NYSE: GM) — that are directly in the crosshairs of the sell-off. Based on upside potential alone, GM stock looks more promising. However, this article will dive deeper into each company.
Though auto demand could sink rapidly going into next year, secular tailwinds enjoyed by electric vehicle (EV) makers are unlikely to vanish. A recession year could see EV makers hit the pause button. In the grander scheme of things, it’s this auto downcycle that could represent a terrific entry point for long-term investors willing to endure the bumps in the road.
Tesla and General Motors are two top EV plays that have been retreating rapidly in 2022. Though it’s difficult to gauge just how bad things can get for shares, I do think the downside in the rear-view mirror is tough to ignore. The auto business is incredibly cyclical, with huge swings to be expected in both directions. The potential rewards for those who buy in downswings could be incredibly pronounced once the tides have a chance to turn.
At this juncture, it’s hard to gauge if we’re near the end of a downswing or in the midst of one. Until the Fed pivots, stocks may not have permission to kick off a relief rally.
Tesla (TSLA)
Tesla is the EV pioneer that’s now down more than 47% from its all-time high, just north of $400 per share. With Elon Musk looking to close his $44 billion deal for Twitter (NYSE: TWTR), there’s some worry that Musk will dump a big chunk of his Tesla stock. The bigger risk, I believe, is the coming economic downturn and rise of competition across the EV space.
Tesla’s third-quarter deliveries miss rang alarm bells for investors. Preliminary Q3 deliveries of 343,830 may have been light relative to the estimates, but it still represents a new high for the EV maker. With recession worries in the air, there’s a good chance that the fourth quarter will also be a bit of a nail-biter.
Even as broader auto demand sinks, Tesla seems to be doing a great job of taking market share amid the broader electrification of vehicles trend. Only time will tell if Tesla can take enough share to offset recession-driven auto demand destruction.
At these valuations, it still seems like there’s too much expectation baked into the stock. At 10.1x sales and 80.8x trailing earnings, Tesla remains one incredibly expensive stock that could take a pummelling if the third quarter proves just the start of an auto market plunge.
Although Tesla has already shed nearly half of its value from peak to trough, the stock is still up more than 800% from its 2020 lows and 235% from its pre-pandemic highs. Undoubtedly, Tesla stock could have room to fall if it follows in the footsteps of other pandemic-era darlings now at two-year lows.
What is the Price Target for TSLA Stock?
Wall Street continues to stand by Tesla, even after its Q3 fumble, with a “Moderate Buy” rating. The average TSLA stock price target of $320.65 implies 47.6% upside from current levels. That’s a solid gain, but the stakes are quite high in the face of a downturn.
General Motors (GM)
GM is a leading automaker that shifted gears into electric in recent years to capitalize on the electrification of autos trend. Though traditional international combustion engine (ICE) vehicles are still a needle-mover for GM, the firm has done a decent job of pivoting relative to other old-school auto firms.
The company has grappled with supply-chain woes and chip shortages over the past year. Though demand has held steady so far, it’s really difficult to gauge where it goes from here. Even as supply issues resolve, there’s no guarantee that demand will remain robust going into 2023. A recession year comes with a new slate of challenges. Regardless, I do think that even a bad year is a year for GM to catch up to its peers in EVs.
Further, GM may be able to claw back market share from the likes of Tesla as it looks to continue going “all-in” on EVs. The company is reported to sell as many as 175,000 EVs to Hertz (NASDAQ: HTZ) by 2027. Undoubtedly, GM’s relentless focus on innovation could help even the playing field over the decade.
While Tesla may be in the lead today, every year is an opportunity for GM to gain a leg up. I think GM’s innovative capabilities are being heavily discounted. The stock trades at 0.4x sales and 6.2x trailing earnings. Understandably, there’s some recession woe baked in, but compared to Tesla, GM stock seems like a bargain.
What is the Price Target for GM Stock?
Wall Street is standing by GM, with a “Moderate Buy” rating — the same as Tesla. The average GM stock price target of $53.79 implies a whopping 67.05% gain.
Conclusion: Don’t Count Out General Motors
Tesla and GM are EV stocks quickly on the retreat. GM is, by far, the cheaper stock with greater upside potential, according to Wall Street analysts. Though Tesla is a frontrunner, it’d be unwise to count GM out of the game as it looks to play catch up in a recession year.
