Trending
Investing in companies part of rapidly expanding addressable markets or megatrends such as electric vehicles allows you to generate outsized gains over time. For example, the global shift towards clean energy solutions will benefit electric vehicle (EV) manufacturers such as Tesla (NASDAQ: TSLA).
A market leader in the EV segment, Tesla enjoys a first-mover advantage allowing it to report $81.4 billion in sales in the last 12 months. Tesla has created massive wealth for long-term investors, and the stock is up 7,570% since March 2013. So, a $1,000 investment in Tesla stock ten years ago would be worth $76,700 today.
But historical gains don’t matter much to the company's future investors, especially when Tesla shares are currently down 56% from all-time highs. So let’s see if investing in the EV giant right now makes sense.
Is Tesla stock a buy, sell or hold?
Tesla delivered 1.3 million EVs in 2022 and ended Q4 of last year with a market share of 12%, according to Counterpoint Research. Comparatively, Tesla sold just over 100,000 vehicles in 2017.
A report from Statista estimates the global EV market to grow at an annual rate of 17% through 2027 to $858 million, providing Tesla with enough room to increase its top line. In fact, analysts expect Tesla’s sales to rise by more than 25% in each of 2023 and 2024, according to data from Yahoo Finance.
Rising competition from legacy manufacturers such as Ford (NYSE: F), Toyota (NYSE: TM), and Volkswagen and new entrants, including Lucid Motors (NASDAQ: LCID), is bound to act as a headwind for Tesla. Additionally, Tesla was forced to cut EV prices by 20% last year amid an inflationary environment. But the company still ended 2022 with an operating income of $13.7 billion, indicating a sector-leading margin of almost 17%.
Morgan Stanley expects Tesla stock to reach $220
According to Morgan Stanley (NYSE: MS) analyst Adam Jonas, the recent price cuts by Tesla should result in higher demand. Jonas expects the company’s economies of scale in the EV space allow it to lower vehicle prices and further compete with other automobile peers.
During Tesla’s Q4 earnings call, CEO Elon Musk, stated, “The most common question we've been getting from investors is about demand……. I want to put that concern to rest.”
Musk confirmed vehicle orders for January 2023 were twice the rate of production. Further, Tesla saw the highest orders year-to-date in its history, primarily due to price cuts.
Jonas has a 12-month price target of $220 for Tesla. At the time of writing, TSLA stock is trading at $198.
Tesla stock surged by almost 8% after rating agency Moody’s upgraded the rating on the company to Baa3. It also claimed, “Tesla will remain one of the foremost manufacturers of battery electric vehicles, with an expanding global presence and very high profitability.”
Despite a challenging macro environment, Tesla more than doubled its net income year over year, showcasing its pricing power. It's pretty evident that the EV behemoth can fund its growth plans with the profits and cash flows it generates.
While Tesla stock is priced at 46 times forward earnings, its management is optimistic about reaccelerating profitability growth by focusing on manufacturing improvements.
Tesla remains a solid long-term bet if it can maintain market share and improve its financials over time.
Related: Down 25% From Record Highs Is JPMorgan Bank Stock a Buy?