Now that summer’s coming to an end, that means it’s time to pull out your scarves, grab a pumpkin spice latte, and reassess your tech stocks. This series helps you decide what to do with your shares of the biggest names in tech — Apple, Alphabet, Amazon, Microsoft, Meta, Nvidia, and Tesla — known as the Magnificent Seven. Up next is EV maker Tesla.
Tesla (TSLA) has never just been about electric vehicles.
Tesla is also about futurism, environmental concerns, its CEO Elon Musk, and faith.
“I’ve called Tesla a faith-based stock, with Elon Musk being at its center,” Interactive Brokers chief strategist Steve Sosnick told Yahoo Finance. “And I will say, if you bought Tesla early, the faith has been well-rewarded.”
How is Tesla doing as the summer comes to a close? All in all, not great, but not terrible. The stock has more than doubled year to date but faltered in the past month, moving 3.5% lower.
Both optimism and pessimism radiate from experts when they talk about the future of one of the most-discussed companies in the world.
“Musk has allowed himself to be pulled in different directions, and it’s affected Tesla,” Sosnick told Yahoo Finance. “There’s an element of futurism that has always been priced into Tesla. For much of its existence, it rewarded that type of futurism. The question now is … should we be more concerned about Tesla’s present and near-term, rather than its long-term future?”
Pressure on Tesla
Near-term, there is increasing competition coming down the pike.
Though Tesla is still the “most sought-after car brand based on searches,” the company has competition coming from all sides, Insider Intelligence senior analyst Gadjo Sevilla said. In the US, General Motors (GM) and Ford (F) have both made gains in EV sales this year, though they are still behind.
Additionally, Tesla’s biggest competition is coming out of China right now from a company called BYD, Sevilla said. BYD has even surpassed Tesla as the top-selling EV in the world.
“They’re not known in North America,” Sevilla said about BYD. “They’re focusing on emerging economies,” such as Africa, the Middle East, and South America.
There’s also increasing pressure on Tesla to release the Cybertruck, as the wait for the concept car to become a reality has gotten longer and longer. That moment seems to still be a ways off — and it has been a moment since investors have seen something new from Tesla.
“The whole cycle is about to catch up with them right now,” Sevilla said. “You have all these other big brands that have multiple price points on their EVs. I think the fact they missed out on launching the Cybertruck [this last year or so] is a big, big loss for them.”
What should you do with Tesla stock?
Currently, Wall Street has 22 Buy, 20 Hold, and 9 Sell ratings for Tesla.
This isn’t an Nvidia situation — there isn’t a full-fledged consensus on Tesla’s future right now.
The question for investors is: Are you paying for growth? If so, it’s worth being careful.
“You’re paying a premium now as this company is maturing, and it’s the same premium you would have paid when it was a fast-moving company,” Sosnick said. “If you look at current P/E and forward P/E, it’s the same next year, implying that earnings are not expected to grow over the coming year.”
Tesla’s trailing P/E is 72.63 and the forward P/E is 76.24, suggesting that earnings will be lower in the next four quarters than was the case in the previous four, according to data from Bloomberg.
When it comes to the uncertainty around valuation, Tesla is a victim of its own success.
“The risk I see in having a stock that’s that highly valued is if that value proposition unwinds,” Sosnick explained. “And Tesla is facing unprecedented competitive risks at a time when its chairman is involved in many other non-automotive endeavors.”
Still, Tesla is and remains a dominant EV maker in the world, with a charging network that’s ahead of competitors. That counts for something. Tesla isn’t in a tough spot so much as it’s in an odd, transitional one.
“I think, at least, for the next few years, they can see along with what they already have, without introducing anything new,” said Sevilla.