For the past two years, ignoring the musings of Tesla (TSLA) stock skeptics has been highly profitable. Since late 2019, the electric vehicle play has surged from around $50, to as much as $900.40 per share. Even after its pullback to around $735 per share, it’s up nearly fifteen-fold.
The skeptics and the shorts have had to throw in the towel. Yet is diving into it today the best move? No, and here’s why.
With so much riding on the company meeting sky-high expectations, there’s a lot more on the horizon that could sink Tesla rather than send it back to its highs.
For this, I am neutral on this stock. It may be a worthwhile buy, if market turmoil temporarily knocks it down to lower prices. Still, it’s definitely not a situation to pounce on at current price levels. (See Tesla stock charts on TipRanks)
For Now, the Narrative Still Holds for TSLA Stock
Why does the bullish narrative around Tesla shares continue to hold? With figures like its recent strong Chinese EV sales numbers (up three-fold year-over-year, and 34% month-over-month), there’s plenty out there to convince investors that the company remains in high-growth mode.
Not only that, with the potential upside that could result from some of its catalysts playing out, in the eyes of the market, it also remains perfectly rational to value this company at a level that makes it more valuable than all of its major automotive competitors combined.
To those still skeptical about TSLA stock, this “narrative” may seem mind-boggling. Yet CEO Elon Musk can continue to make big promises, and until it becomes unmistakably clear that Musk can’t deliver, investors will carry on pricing the possibilities he’s laid out as near-certainties.
Nevertheless, that doesn’t mean this narrative can’t quickly unravel. If the company fails to deliver on its plans for a low-cost, self-driving vehicle? Big downside may lie ahead.
What could Go Wrong for Tesla?
Trading sideways since February, investors are hesitant about pushing TSLA stock to an even higher valuation. On the other hand, as much remains in its favor, they haven’t felt the need to bid it down to a more reasonable valuation.
That said, this could change over the next twelve months. How? First, it could become clear that this company is not set to dominate the electric vehicle market. Its share of the overall EV market is already falling, as competition heats up in the U.S., China, and Europe.
If incumbent automakers like Ford (F), General Motors (GM), and Volkswagen (VWAGY) successfully make the shift to producing mostly EVs? It may challenge the belief held by many Tesla bulls that it’ll leave the “old school” car makers in the dust once it starts producing lower-cost, mass market vehicles.
Something else that could sink its valuation: failure to deliver when it comes to autonomous vehicles. The company has not only recently announced it plans to start producing a low-cost ($25,000 sticker price) car by 2023. It has also claimed this car will be fully self-driving. With its work cut out for it, and expectations high, any sign of it falling short could mean big disappointment, and in turn a big drop in its share price.
What Analysts are Saying About TSLA Stock
According to TipRanks, TSLA stock has a consensus rating of Hold. Out of 25 analyst ratings, 12 rate it a Buy, 7 analysts rate it a Hold, and 6 analysts rate it a Sell.
As for price targets, the average Tesla price target today is $697.90 per share, implying around 5.21% in downside from today’s prices. Analyst price targets range from a low of $150 per share, to a high of $1500 per share.
Bottom Line: ‘Wait and See’ Seemingly The Best Course of Action
Company-specific risks aren’t the only concern to have about Tesla shares today. Like with other growth stocks trading at high forward valuation multiples, this is another name that could fall hard if market conditions reverse. Even Cathie Wood, a vocal bull on the stock, has started to take profit. Her firm, Ark Invest, recently sold around $109 million worth of the EV maker’s shares.
With the risk disappointment/market turmoil sending it tumbling exceeding the changes it surges again, despite the narrative still surrounding it, consider TSLA stock a “wait and see” situation.
Disclosure: At the time of publication, Thomas Niel did not have a position in any of the securities mentioned in this article.
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