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Musk Tops the Rich List as Tesla (TSLA) Hits 2023 High

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In a stunning turn of events, Tesla (TSLA - Free Report) CEO Elon Musk has once again been crowned as the richest person on Earth, dethroning LVMH chairman Bernard Arnault. Shares of the electric vehicle (EV) company rose 4.6% yesterday to close the session at $234.86, soaring to its highest level so far this year. With Tesla's shares experiencing a 10-day winning streak and the confirmation of eligibility for a $7,500 tax credit for its best-selling vehicles, investors are left wondering whether to book profits from the recent rally or hold onto them in the hopes of potential future gains. This article explores the extraordinary resurgence of Tesla in 2023 and examines the investment prospects it presents hereon.

The Striking Reversal From 2022 Decline to 2023 Triumph

Following a tumultuous 2022, marked by a 65% decline in Tesla's stock price due to COVID-related lockdowns in China and Elon Musk's controversial acquisition of Twitter, investors were apprehensive. Concerns grew that Musk's involvement with Twitter could prove to be a distraction and hinder Tesla's progress. However, Tesla managed to regain Wall Street's confidence by delivering record-breaking quarterly revenues and earnings in January. This positive momentum continued with its impressive first-quarter 2023 results, which demonstrated the company's resilience and recovery.The EV behemoth topped earnings estimates for the ninth time in a row in the last reported quarter.

The Numbers Speak: Impressive YTD Performance

The numbers paint a compelling picture of Tesla's resurgence.  Shares have rebounded in a big way in 2023 so far after sinking to a two-year low in early January. The stock is up 90.7% year to date, crushing the S&P 500’s growth of 12.2%. Tesla has outperformed most other companies in the S&P 500. Driven by the remarkable rally, Musk has regained his position as the wealthiest individual worldwide. According to Forbes, Musk's net worth soared to $220.2 billion, surpassing Bernard Arnault's fortune by $4.2 billion at the close of the market yesterday. On Wednesday, Musk briefly eclipsed Arnault in wealth, reclaiming the top spot for the first time since December, only to fall back below Arnault's net worth by the end of the trading day.

YTD Performance

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Having said that, Tesla's shares are still trading lower than their peak in November 2021. So, does the current price level suggest more potential upside for investors as the company continues to recover and capitalize on new opportunities?

Can TSLA Keep Up Its Winning Streak?

There are a plethora of catalysts that make us believe that Tesla’s positive momentum is here to stay. The world is doubling down on EV adoption with government subsidies, policy changes and infrastructure buildup. Tesla has gradually established itself as a leader in the e-mobility space. This should be the perfect backdrop for solid growth in the foreseeable future. Tesla has a five-year expected EPS growth rate of 24.7%, higher than the industry’s 20.9%.

Impressive Deliveries: Deliveries of Model 3/Y witnessed a CAGR of more than 100% over the last three years. Despite supply chain disruptions and economic challenges, total deliveries grew 40.3% year over year to more than 1.3 million units in 2022. The first-quarter of 2023 marked record production and deliveries. Model Y was the best-selling vehicle in Europe in the first quarter of 2023. It was also the top-selling car in the United States. Production ramp-up at gigafactory 4 (in Berlin) and 5 (in Austin) and the introduction of new models, including Semi and Cybertruck, are set to support deliveries growth, going forward. Thanks to strong deliveries, we believe Tesla will maintain its upward trajectory in automotive revenues. 

Price Cuts Spark Demand: To counter rising interest rates, which have made the cost of financing vehicles expensive, Tesla has been lately resorting to price cuts on most of its models to spur demand. With the vehicles getting more affordable, the company is witnessing strong orders. Not only are these price cuts making its cars more competitive compared with rivals’ but the price has made several of its models eligible for the $7,500 tax rebates (allowed on EVs under 55,000 and electric SUVs and trucks under $80,000).

Tesla's recent eligibility for 100% tax credits, a result of the new Inflation Reduction Act, has significant implications for its market share. With full tax credit eligibility for all its Model 3/Y variants, Tesla has positioned itself as a compelling choice for prospective buyers. This competitive pricing strategy is expected to fuel further market expansion and contribute to Tesla's growth.

Electrifying Non-Automotive Growth: Tesla’s energy generation and storage revenues are also growing, courtesy of the positive reception of Megapack and Powerwall products. Energy storage deployments have risen at a CAGR of 47% between 2020 and 2022. Notably, Tesla achieved its highest-ever energy storage deployment in Q1, reaching almost 4-gigawatt hours during the period, largely due to the ongoing expansion at the Mega factory located in Lathrop, CA. The company is ramping up production at a dedicated Megapack factory to meet mounting demand. We expect the deployments to grow more than 135% in 2023, thereby boosting revenues.

Strengthening Balance Sheet: Falling debt levels are another positive. Long-term debt and finance leases, net of the current portion totaled $1,272 million as of Mar 31, 2023, down from $1,597 million as of 2022 end. Its long-term debt-to-capitalization of around 3.3% compares favorably with the industry’s 40.6%. Low leverage provides the firm with the financial flexibility to tap growth opportunities. In fact, Musk stated on the third-quarter 2022 earnings call that the company is also contemplating buyback in the range of $5 billion-$10 billion.

Bottom Line

Tesla's remarkable rebound in 2023, after facing significant challenges in the previous year, signals a potential turning point for the company. It’s no secret that Tesla shares are pricey, currently trading at a 6.73X forward price-to-sales ratio, compared with the industry’s 1.62X. Still, investors have had little issue paying the premium, given the company’s strong growth trajectory.Tesla fans have always believed in Musk’s vision.

Tesla has a strong growth profile, with a Growth Score of B. The company’s sales are projected to soar in double-digit percentages in its current year (+22%) and next (+26%). The confirmation of eligibility for full tax credits for its complete Model 3/Y lineup and its impressive year-to-date performance create an optimistic outlook for investors. While one needs to be mindful of the stock's previous volatility, the market expansion opportunities presented by the tax credit and Tesla's resilience are factors that cannot be overlooked.

We believe that investors should hold onto Tesla based on its market leadership, progressively broadening global operations and new product developments that promise to take it to dizzy heights in the coming years. TSLA currently carries a Zacks Rank #3 (Hold).

2 Top-Ranked Auto Stocks

Ford (F - Free Report) : It is one of the leading automakers in the nation. A strong vehicle mix supported by F-series trucks and SUV models, combined with a robust EV lineup, should drive Ford’s growth.

Ford currently sports a Zacks Rank #1 (Strong Buy) and has a Value Score of A. The Zacks Consensus Estimate for F’s 2023 sales implies year-over-year growth of 7.5%. The consensus mark for Ford’s 2023 and 2024 EPS has moved north by 12 cents and 7 cents, respectively, over the past 30 days. Over the trailing four quarters, the stock surpassed estimates on two occasions for as many misses, the average surprise being 24.3%.

General Motors (GM - Free Report) : One of the world’s largest automakers, General Motors held the largest share of the U.S. auto market at 16% in 2022. General Motors’ compelling portfolio witnesses strong demand for quality full-size pickups and SUVs.

GM currently sports a Zacks Rank #1 and has a Value Score of A. The Zacks Consensus Estimate for General Motors’ 2023 sales implies year-over-year growth of 4.5%. The consensus mark for GM’s 2023 and 2024 EPS has moved north by 57 cents and 45 cents, respectively, over the past 60 days. Over the trailing four quarters, the stock surpassed estimates on three occasions and missed once, the average surprise being 15.5%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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