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Tesla (TSLA) Poses Investment Dilemma: Cash Out or Hold Tight?
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We’re all highly familiar with Tesla (TSLA - Free Report) , the undisputed EV leader and an investor favorite over the last decade. Following a tumultuous 2022, which marked a 65% decline in the stock price due to COVID-related lockdowns in China and Elon Musk's controversial acquisition of Twitter, Tesla has rebounded in a big way in 2023 so far. Year to date, shares of TSLA have rocketed around 108%, crushing the S&P 500’s growth of 14.4%.
So, what has been driving this surge? And considering the impressive rally, is it time to book profits finally?
Well, the shares are indeed pricey, currently trading at a 7.28X forward price-to-sales ratio, compared with the industry’s 1.81X. Still, investors have never really had much issue paying the premium, given the company’s strong growth trajectory and belief in Musk’s vision. So, should you hold onto Tesla based on its market leadership, progressively broadening global operations and new product developments? Or is this the right time to liquidate your holdings in anticipation of a potential correction?
YTD Performance
Image Source: Bigstock
Behind TSLA’s Remarkable Rebound in 2023
While the overall stock market rebound and the recovering economy have certainly played a role in Tesla’s stellar run on the bourses, the most significant gains have indeed materialized in the past few weeks, following a series of groundbreaking announcements.
Confirmation of eligibility for a $7,500 tax credit for all its Model 3/Y variants has provided the stock a major boost. What has further drawn investors’ attention is the widespread adoption of Tesla's North American Charging Standard (NACS) port. Major automakers like General Motors (GM - Free Report) , Rivian Automotive (RIVN - Free Report) and Ford (F - Free Report) announced their decision to embrace Tesla's NACS connector, which is steadily progressing toward becoming the prevailing industry standard across the continent.
It was Ford that got the ball rolling. Last month, Ford initiated this new trend by announcing that it would make its charging cords compatible with Tesla's NACS cables, granting Ford EV owners access to Tesla's vast Supercharger network. General Motors followed suit. On Jun 8, General Motors announced a collaboration with Tesla to integrate NACS plugs into its EVs starting in 2025. The collaboration will also provide GM EV drivers access to 12,000 Tesla Superchargers for charging their vehicles. They will get access to the Tesla Supercharger Network starting in 2024 and will initially require an adaptor.
Last week, Rivian announced plans to utilize the Supercharger network for charging its highly acclaimed R1T and R1S models, beginning in spring 2024.Additionally, beginning in 2025, Rivian intends to include NACS ports as a standard feature in their future R1 vehicles, as well as in the forthcoming R2 platform.
In response to the industry-wide evolution, leading charging equipment manufacturers Blink Charging, ChargePoint, EVgo and Wallbox announced plans to offer chargers featuring Tesla's connector, marking a significant turn away from the standard Combined Charging System (CCS) connector.With Tesla revolutionizing the charging landscape, the stock notched its longest winning streak on Jun 13. The EV behemoth ended its streak of 13 straight days of gains on Jun 14. Still, the stock is up around 33% in the past month.
Musk’s Autonomy Quest & Analysts’ Cautionary Words
Tesla’s market cap currently sits at more than $800 billion. During the VivaTech innovation conference in Paris, Musk emphasized that the company’s market cap hinges on its ability to achieve a breakthrough in autonomous driving. And Tesla is not at the forefront of that arena.
Despite the marketing claims of Tesla's driver assistance programs as being safe and fully functional, the reality is marred by a string of crashes resulting in injuries and loss of lives. This has cast doubt on the actual effectiveness of the technology. Between July 2021 and June 2022, the National Highway Traffic Safety Administration (NHTSA) reported 392 crashes involving driver-assistance programs, with Tesla accounting for nearly 70% of those incidents. In response to safety concerns raised by the NHTSA, Tesla issued a recall on February 16, 2023, affecting over 360,000 vehicles equipped with Full Self-Driving (FSD) Beta, an experimental driver-assistance software.
Despite Elon Musk's optimism about Tesla's FSD platform and the company's plans to mass-produce a robotaxi by 2024, it is crucial to acknowledge that the technology is yet to be perfected. Despite Musk's repeated claims that Tesla is nearing a breakthrough in autonomous driving, the reality is that the company's cars still offer advanced driver assistance features rather than full autonomy. The timeline for achieving fully autonomous capabilities has faced delays, and while Tesla continues to work toward this goal, the technology has not yet been fully realized in their vehicles.
Last Wednesday, Barclays analyst Dan Levy downgraded its rating on Tesla from Overweight to Equal Weight, citing the anticipation of a potential cooling-off period for the company's shares after their impressive surge in 2023. Levy believes AI is a “long-dated” potential for Tesla and not a near-term prospect, so it’s better to “move to the sidelines.” The next day, Morgan Stanley analyst Adam Jonas – one of the Tesla bulls – also downgraded Tesla on reservations about the excessively optimistic AI-driven aspirations of the company.
What to Do With Tesla Shares?
According to Musk, the true value of Tesla lies in the potential of achieving full autonomy. However, the potential of AI for the company will take a significant amount of time to fully realize. As it is, Tesla's track record with driver-assistance programs has been marred by reported crashes and safety concerns. The stock will likely be volatile in the near term due to its valuation and is not suited for the fainted-hearted. We believe this is a suitable time for investors to consider capitalizing on their gains.
While risk-tolerant investors who believe Tesla’s autonomy breakthrough and Musk’s vision could still consider holding on to their investments, those speculative of its robotic narrative should consider offloading TSLA shares at the current levels.
TSLA currently carries a Zacks Rank #4 (Sell) and has a VGM Score of C. The Zacks Consensus Estimate 2023 EPS suggests a year-over-year decline of 12.5%. The consensus mark for 2023 and 2024 EPS has been revised downward by 2 cents each over the past 30 days.
Image: Shutterstock
Tesla (TSLA) Poses Investment Dilemma: Cash Out or Hold Tight?
We’re all highly familiar with Tesla (TSLA - Free Report) , the undisputed EV leader and an investor favorite over the last decade. Following a tumultuous 2022, which marked a 65% decline in the stock price due to COVID-related lockdowns in China and Elon Musk's controversial acquisition of Twitter, Tesla has rebounded in a big way in 2023 so far. Year to date, shares of TSLA have rocketed around 108%, crushing the S&P 500’s growth of 14.4%.
So, what has been driving this surge? And considering the impressive rally, is it time to book profits finally?
Well, the shares are indeed pricey, currently trading at a 7.28X forward price-to-sales ratio, compared with the industry’s 1.81X. Still, investors have never really had much issue paying the premium, given the company’s strong growth trajectory and belief in Musk’s vision. So, should you hold onto Tesla based on its market leadership, progressively broadening global operations and new product developments? Or is this the right time to liquidate your holdings in anticipation of a potential correction?
YTD Performance
Image Source: Bigstock
Behind TSLA’s Remarkable Rebound in 2023
While the overall stock market rebound and the recovering economy have certainly played a role in Tesla’s stellar run on the bourses, the most significant gains have indeed materialized in the past few weeks, following a series of groundbreaking announcements.
Confirmation of eligibility for a $7,500 tax credit for all its Model 3/Y variants has provided the stock a major boost. What has further drawn investors’ attention is the widespread adoption of Tesla's North American Charging Standard (NACS) port. Major automakers like General Motors (GM - Free Report) , Rivian Automotive (RIVN - Free Report) and Ford (F - Free Report) announced their decision to embrace Tesla's NACS connector, which is steadily progressing toward becoming the prevailing industry standard across the continent.
It was Ford that got the ball rolling. Last month, Ford initiated this new trend by announcing that it would make its charging cords compatible with Tesla's NACS cables, granting Ford EV owners access to Tesla's vast Supercharger network. General Motors followed suit. On Jun 8, General Motors announced a collaboration with Tesla to integrate NACS plugs into its EVs starting in 2025. The collaboration will also provide GM EV drivers access to 12,000 Tesla Superchargers for charging their vehicles. They will get access to the Tesla Supercharger Network starting in 2024 and will initially require an adaptor.
Last week, Rivian announced plans to utilize the Supercharger network for charging its highly acclaimed R1T and R1S models, beginning in spring 2024.Additionally, beginning in 2025, Rivian intends to include NACS ports as a standard feature in their future R1 vehicles, as well as in the forthcoming R2 platform.
In response to the industry-wide evolution, leading charging equipment manufacturers Blink Charging, ChargePoint, EVgo and Wallbox announced plans to offer chargers featuring Tesla's connector, marking a significant turn away from the standard Combined Charging System (CCS) connector.With Tesla revolutionizing the charging landscape, the stock notched its longest winning streak on Jun 13. The EV behemoth ended its streak of 13 straight days of gains on Jun 14. Still, the stock is up around 33% in the past month.
Musk’s Autonomy Quest & Analysts’ Cautionary Words
Tesla’s market cap currently sits at more than $800 billion. During the VivaTech innovation conference in Paris, Musk emphasized that the company’s market cap hinges on its ability to achieve a breakthrough in autonomous driving. And Tesla is not at the forefront of that arena.
Despite the marketing claims of Tesla's driver assistance programs as being safe and fully functional, the reality is marred by a string of crashes resulting in injuries and loss of lives. This has cast doubt on the actual effectiveness of the technology. Between July 2021 and June 2022, the National Highway Traffic Safety Administration (NHTSA) reported 392 crashes involving driver-assistance programs, with Tesla accounting for nearly 70% of those incidents. In response to safety concerns raised by the NHTSA, Tesla issued a recall on February 16, 2023, affecting over 360,000 vehicles equipped with Full Self-Driving (FSD) Beta, an experimental driver-assistance software.
Despite Elon Musk's optimism about Tesla's FSD platform and the company's plans to mass-produce a robotaxi by 2024, it is crucial to acknowledge that the technology is yet to be perfected. Despite Musk's repeated claims that Tesla is nearing a breakthrough in autonomous driving, the reality is that the company's cars still offer advanced driver assistance features rather than full autonomy. The timeline for achieving fully autonomous capabilities has faced delays, and while Tesla continues to work toward this goal, the technology has not yet been fully realized in their vehicles.
Last Wednesday, Barclays analyst Dan Levy downgraded its rating on Tesla from Overweight to Equal Weight, citing the anticipation of a potential cooling-off period for the company's shares after their impressive surge in 2023. Levy believes AI is a “long-dated” potential for Tesla and not a near-term prospect, so it’s better to “move to the sidelines.” The next day, Morgan Stanley analyst Adam Jonas – one of the Tesla bulls – also downgraded Tesla on reservations about the excessively optimistic AI-driven aspirations of the company.
What to Do With Tesla Shares?
According to Musk, the true value of Tesla lies in the potential of achieving full autonomy. However, the potential of AI for the company will take a significant amount of time to fully realize. As it is, Tesla's track record with driver-assistance programs has been marred by reported crashes and safety concerns. The stock will likely be volatile in the near term due to its valuation and is not suited for the fainted-hearted. We believe this is a suitable time for investors to consider capitalizing on their gains.
While risk-tolerant investors who believe Tesla’s autonomy breakthrough and Musk’s vision could still consider holding on to their investments, those speculative of its robotic narrative should consider offloading TSLA shares at the current levels.
TSLA currently carries a Zacks Rank #4 (Sell) and has a VGM Score of C. The Zacks Consensus Estimate 2023 EPS suggests a year-over-year decline of 12.5%. The consensus mark for 2023 and 2024 EPS has been revised downward by 2 cents each over the past 30 days.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.