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Tesla (TSLA - Free Report) shareholders have been on a roller-coaster ride this year, and just as the deepest plunges are the most unnerving, the stock’s recent performance -- down 21.1% in the past month -- has made its most steady fans kind of nervous. Including yours truly.
Although the company did manage to beat earnings estimates by a comfortable 9.2%, sales dropped below expectations. For some perspective, I’ve pasted the revenue chart below, so you can take a look at how that’s gone over the past 5 years, including the last “disappointing” quarter.
Image Source: Zacks Investment Research
It’s totally understandable that people are concerned because of emerging competition from the likes of Nio (NIO), Li Auto (LI), Rivian (RIVN - Free Report) , Lucid Group (LCID - Free Report) and XPeng Inc (XPEV - Free Report) , as well as from well-established players like Ford Motor Co. (F - Free Report) and General Motors Co. (GM). It doesn’t matter at all that all these players are at various stages of their EV growth story and some don’t have many vehicles to their credit at all.
Just the fact that there are so many companies out for their share of the pie is enough to tell you that Tesla will be losing market share. But when the market is as huge as it is today, should that be such a big cause for concern? After all, the winner doesn’t have to take all. As the above revenue chart shows, Tesla is not doing too bad.
China Merchants Bank International (CMBI) traces Tesla’s recent price cuts in China to the growing competition in that market. However, when questioned on China on the earnings call, Musk appeared confident about the company’s growth prospects there as well as worldwide. He said that if it wasn’t for the outbound logistics issue, Tesla would be growing volumes 50% next year. But since that problem will take time to sort out, we should expect 30% growth a year in the foreseeable future.
That could well be the case because while Ford and GM are coming up strongly, Toyota is reportedly going back to the drawing board to take on Tesla!
Competition isn’t the only factor, however. Tesla is hardly immune to the supply chain issues, or other China-related concerns, such as COVID shutdowns and the souring of relations with the U.S. With a company that has as much exposure to China as Tesla does, and the extent of its dependence on Chinese goodwill to grow its manufacturing business, a certain amount of caution makes sense. But with Texas and Berlin Gigafactories revving up, Tesla seems to be doing a good job of spreading its risk.
Outside of energy, it’s hard to find stocks with as strong a growth potential as Tesla. There aren’t too many companies out there with expected revenue growth of 56% and 40% in 2022 and 2023, respectively. And earnings growth is expected to be equally strong at a respective 78% and 33%.
It’s also encouraging to note that estimates are generally moving up with Oppenheimer’s negative revision (for 2022) is skewing the average somewhat. All analysts are looking for strong growth in both years, although they may be adjusting estimates slightly.
After considering all of the above and Tesla’s strong long-term potential, I can breathe a bit easier. I can say that it’s probably a good idea to take a wait and see approach on Tesla. And hold the shares for now.
One-Month Price Performance
Image Source: Zacks Investment Research
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Tesla Down Nearly 40% YTD: Buy, Sell or Hold?
Tesla (TSLA - Free Report) shareholders have been on a roller-coaster ride this year, and just as the deepest plunges are the most unnerving, the stock’s recent performance -- down 21.1% in the past month -- has made its most steady fans kind of nervous. Including yours truly.
Although the company did manage to beat earnings estimates by a comfortable 9.2%, sales dropped below expectations. For some perspective, I’ve pasted the revenue chart below, so you can take a look at how that’s gone over the past 5 years, including the last “disappointing” quarter.
Image Source: Zacks Investment Research
It’s totally understandable that people are concerned because of emerging competition from the likes of Nio (NIO), Li Auto (LI), Rivian (RIVN - Free Report) , Lucid Group (LCID - Free Report) and XPeng Inc (XPEV - Free Report) , as well as from well-established players like Ford Motor Co. (F - Free Report) and General Motors Co. (GM). It doesn’t matter at all that all these players are at various stages of their EV growth story and some don’t have many vehicles to their credit at all.
Just the fact that there are so many companies out for their share of the pie is enough to tell you that Tesla will be losing market share. But when the market is as huge as it is today, should that be such a big cause for concern? After all, the winner doesn’t have to take all. As the above revenue chart shows, Tesla is not doing too bad.
China Merchants Bank International (CMBI) traces Tesla’s recent price cuts in China to the growing competition in that market. However, when questioned on China on the earnings call, Musk appeared confident about the company’s growth prospects there as well as worldwide. He said that if it wasn’t for the outbound logistics issue, Tesla would be growing volumes 50% next year. But since that problem will take time to sort out, we should expect 30% growth a year in the foreseeable future.
That could well be the case because while Ford and GM are coming up strongly, Toyota is reportedly going back to the drawing board to take on Tesla!
Competition isn’t the only factor, however. Tesla is hardly immune to the supply chain issues, or other China-related concerns, such as COVID shutdowns and the souring of relations with the U.S. With a company that has as much exposure to China as Tesla does, and the extent of its dependence on Chinese goodwill to grow its manufacturing business, a certain amount of caution makes sense. But with Texas and Berlin Gigafactories revving up, Tesla seems to be doing a good job of spreading its risk.
Outside of energy, it’s hard to find stocks with as strong a growth potential as Tesla. There aren’t too many companies out there with expected revenue growth of 56% and 40% in 2022 and 2023, respectively. And earnings growth is expected to be equally strong at a respective 78% and 33%.
It’s also encouraging to note that estimates are generally moving up with Oppenheimer’s negative revision (for 2022) is skewing the average somewhat. All analysts are looking for strong growth in both years, although they may be adjusting estimates slightly.
After considering all of the above and Tesla’s strong long-term potential, I can breathe a bit easier. I can say that it’s probably a good idea to take a wait and see approach on Tesla. And hold the shares for now.
One-Month Price Performance
Image Source: Zacks Investment Research