Is Tesla Stock a Buy Ahead of Earnings?
With shares down substantially this year, now is a good time to take a look at the stock.
It’s a great time to take a closer look at Tesla (TSLA) stock. Not only are the electric-car company’s shares trading substantially below the levels they started the year at, but we also have fresh information on how the company’s new vehicles are selling. In addition, Tesla’s second-quarter earnings report is due later this month, so it makes sense to have some context going into the important update.
Unfortunately, Elon Musk-led company’s latest delivery numbers aren’t looking good. But this information alone isn’t enough to rule out the stock as a good potential investment at around $300 per share.
Let’s examine Tesla’s latest vehicle shipments alongside other key information to determine if the stock is worth buying today.
Image source: Getty Images.
Challenges persist
In Q1, Tesla initiated significant factory upgrades to help it ramp up production of a refreshed version of the Model Y. This led to a loss of several weeks of production during the period. This led to a steep 13% year-over-year drop in deliveries and a significant 32% sequential decline. Going into Q2, investors were hoping for a sequential jump — and they got it. Second-quarter deliveries rose 14% sequentially.
Still, these results were underwhelming. On a year-over-year basis, Tesla’s deliveries were down 13%. This reflects the continued challenges of selling a product that is often financed in a high-interest rate environment. In addition, there are some concerns that Tesla’s brand image has suffered from CEO Elon Musk’s outspoken political involvement. Finally, broader macroeconomic uncertainty may also be weighing on automotive sales as consumers exercise more caution with their discretionary purchases.
This isn’t just a one-quarter problem either. Tesla’s quarterly sales volumes have largely been flat since the fourth quarter of 2022. Even more, the electric-car maker’s deliveries are actually down 4% on a trailing-12-month basis.
Management spoke about some of its biggest challenges in its first-quarter update earlier this year: “Uncertainty in the automotive and energy markets continues to increase as rapidly evolving trade policy adversely impacts the global supply chain and cost structure of Tesla and our peers. This dynamic, along with changing political sentiment, could have a meaningful impact on demand for our products in the near term.”
The bull case
Despite these issues, Tesla investors appear to be convinced that the company will experience a surge in sales trends at some point. This is evident by the wild premium the stock commands. Shares trade at a price-to-earnings ratio of 169 as of this writing. A valuation like this bakes in huge sales and earnings growth for years to come.
Where could this growth come from?
One key catalyst Tesla bulls often cite is the company’s nascent autonomous ride-sharing network. Called Robotaxi, this service is already being trialed in Austin, Texas. Tesla CEO Elon Musk has stated that he believes the company will have millions of customer vehicles participating in the Robotaxi program by the end of next year. He believes the service will ramp quickly because it’s based on technology already built into customer vehicles. Customers, therefore, will be able to deploy their vehicles into the fleet once the software update is ready and regulations permit it.
In addition, Tesla has said it believes that demand for its vehicles will inflect as it demonstrates increasingly impressive autonomous driving capabilities.
Finally, there’s incremental revenue and profit that could be derived from the company’s humanoid robots, which are still in development stages but will be available for businesses and consumers to purchase in the coming years.
Tesla’s current situation can be best summed up by this recent quote from Elon Musk in the company’s first-quarter earnings call:
So there are some challenges, and I expect that … there’ll probably be some unexpected bumps this year. [But] I remain extremely optimistic about the future of the company. The future of the company is fundamentally based on large-scale autonomous cars and … vast numbers of autonomous humanoid robots.
Altogether, Tesla stock could be a good buy today if investors have a high level of confidence in the electric-car company‘s ability to execute its ambitious plans over the next decade. But considering the stock’s high valuation already, this is a gamble. For this reason, I’d liken shares closer to a hold than a buy at their current price. Investors interested in getting in on this growth story might want to wait around to see if shares fall further at some point. A lower price would help take some of the significant valuation risk off the table.
Investors will likely get more insight into Tesla’s progress and plans when the company reports earnings on Wednesday, July 23, after market close.
Daniel Sparks and/or his clients have positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.