Tesla (TSLA) is arguably among the most fascinating, yet most controversial and polarizing, companies of all time. To its credit, Tesla has almost single-handedly led the electric vehicle (EV) transition – a category that was once dismissed as a niche by legacy automakers.
Tesla’s ever-expanding market cap has baffled many. At its peak in 2021, it was valued at more than $1.2 trillion, and even the combined market cap of the world’s biggest automakers couldn’t approach that level.
To be sure, Tesla has created tremendous investor wealth since it went public in 2010 at $17 per share.
Since then, TSLA has undergone two stock splits – in relatively quick succession, between 2020 and 2022 – and its split-adjusted IPO price is just over $1 per share. At its current levels around $256, the stock has since delivered some of the most impressive post-IPO returns ever.
Tesla Stock Forecast: Wall Street is Divided
It’s not unusual for analysts to have differing opinions about a particular stock – with Nvidia (NVDA) being a notable current exception, as not one analyst rates it as a Sell, despite the monstrous 2023 rally that has catapulted it into the ranks of $1 trillion companies.
Tesla has a consensus rating of Hold from the 26 analysts covering the stock. Seven analysts rate it as a Strong Buy, while 1 rates it as a Moderate Buy. Three analysts have a Strong Sell rating on the stock, while no fewer than 15 – over 50% of the analysts following TSLA – rate it as a Hold.
The stock also trades above its mean target price of $242.42, but this has become more of a norm than an exception – aside from a few die-hard TSLA bulls, not many analysts have been able to justify the company’s valuation.
As for those Tesla bulls, they have always believed in the story, and expect the stock to rise to even higher levels. For example, there’s fund manager Cathie Wood – a vocal Tesla and Musk supporter – who predicts the stock will rise to $2,000 per share by 2027 under her base case scenario.
Should You Buy Tesla Stock Now?
Both Tesla bulls and bears have some valid points to justify their thesis on the company, so let’s take a look at each side of the argument.
Here are some factors working in favor of the Tesla stock bulls:
- The company has an impeccable lead and is the gold standard in the EV industry. Many startup EV companies aspire to be the “next Tesla”, but almost all have faltered – or worse, gone out of business.
- Tesla’s software segment, which includes its self-driving business, should add significant value over the long term, especially with the company looking to monetize the technology even further by licensing it to other automakers.
- Tesla’s Energy business should also grow significantly as the world transitions to green energy.
- The automaker still has industry-leading margins, and has built a strong ecosystem with its Superchargers – prompting legacy names like Ford (F) and General Motors (GM) to adopt its charging standard and partner with its sprawling charging network.
- While Tesla’s forward price-to-earnings (PE) is above 80x, some bulls value it as a tech company – and not necessarily as an automaker, which would usually trade at single-digit PE multiples.
Should You Sell Tesla Stock? Here’s What the Bears Say
Meanwhile, those who are bearish on TSLA also have their share of talking points. First, the EV price war – which was initiated by Tesla to begin with – has taken a toll on the company’s earnings.
Its operating income and margins fell steeply YoY in Q2 2023 due to the price cuts. Tesla’s valuation premium also comes from its industry-leading margins, which are now down by over half from the peak to single digits.
There also seems to be a supply glut of EVs, including Teslas. Guggenheim, which recently reiterated its Sell rating on TSLA, said in its accompanying note that the company’s U.S. inventories are rising – a sign of production outstripping sales. Incidentally, Tesla’s production has surpassed deliveries for the last several quarters, which shows that it is not exactly the “demand-constrained” company it once used to be.
EV Competition is Rising
Tesla hasn’t faced much overwhelming competition so far, either from legacy automakers or from other pure-play EV companies. However, with automakers globally ramping up their EV production, the competition in the EV industry is set to heat up even further.
By Musk’s own admission, autonomous driving accounts for the bulk of Tesla’s valuation. However, so far, the company’s full self-driving (FSD) hasn’t reached full autonomy, despite what the name suggests. The controversial software is facing several investigations, and in the most recent case, the National Highway Traffic Safety Administration (NHTSA) asked the company to provide data on its secretive “Elon Mode” that allowed drivers to use the self-driving system without putting their hands on the steering wheel.
Tesla hasn’t launched a new model since the Model Y in 2020, and the Model 3 – which helped the company achieve scale – is also aging. The Cybertruck is not only running way behind schedule, but an internal memo revealed the challenges in manufacturing the unconventional trapezoidal pickup.
Finally, bears argue that TSLA is primarily an automaker, and given the industry’s capital-intensive nature, it should not command the kind of valuations that it does.
Overall, I believe that both sides have quite valid arguments. Given these factors, I would stay neutral on the stock for now, but would certainly have the company on the watchlist and look to buy meaningful dips.
On the date of publication, Mohit Oberoi had a position in: F , GM , NVDA . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.