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Tesla shares are down 45%: should I buy now?

Dylan Hood — Tue, 21 Jun 2022 07:33:00 +0000

2022 has proved a brutal year so far for Tesla (NASDAQ: TSLA) shares and they’re down 45% year to date. However, over a 12-month period the shares have returned 5%, and over the past five years a whopping 747%.

So, should I be capitalising on the recent price fall and adding Tesla shares to my portfolio? Or should I steer clear of the world’s largest electric vehicle company? Let’s investigate.

Why the stock has fallen

One of the primary reasons why Tesla stock has taken a hit over the past few months is rising inflation. US inflation reached 8.6% in May, vastly outpacing analysts’ expectations. Inflation erodes the future value of company earnings and tends to put pressure on stock valuations. This is especially true when interest rates also rise, as they have done in the last month in both the US and UK. Tesla CEO Elon Musk took to Twitter to announce he had a “super bad feeling” about the US economy, and that Tesla would have to cut its workforce by around 10% to cope. This isn’t good for the firm’s growth and has been reflected in the recent decline in the share price.

In addition to this, the firm has suffered from prolonged Covid-19-related matters. Back in 2020 and 2021, the pandemic led to huge supply bottlenecks that curtailed Tesla’s production. More recently, the lockdown in Shanghai meant that Tesla had to stop its production there, slowing production growth. Even before these shortages, demand was far outweighing the supply of vehicles, so these additional disruptions are really limiting the firm’s growth.

Unappealing valuation

Tesla shares are currently priced at $650. This is some way off of its $1,200 high reached in November 2021. However, the shares still trade on of a monstrous price to earnings (P/E) ratio of 87. For context, good value stocks usually trade under the 10 P/E mark. I don’t think the above macroeconomic and supply risks are priced into Tesla shares, which does worry me.

Reasons to be cheerful

Tesla’s most recent set of results was outstanding. In the first quarter of 2022, the company’s revenues swelled 87% year-on-year, with profits jumping over 130%. Both of these figures vastly outpaced analysts’ expectations, and the shares surged over 5% on the encouraging news. If the company can deliver more results like this, I think investors will react positively and push the stock up further.

The verdict

Although Tesla shares have fallen substantially, the lofty valuation still bothers me. I don’t think the risks facing the firm are fully reflected in the current share price. The next set of results is due for release in late July and could help bump up Tesla stock. However, it’s too uncertain a situation for me to warrant an investment. For that reason, I won’t be buying any shares today.

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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Are Tesla shares a buy at $1,000?

Dylan Hood — Mon, 25 Apr 2022 08:31:00 +0000

Tesla (NASDAQ: TSLA) shares have continued their volatility throughout 2022, mainly due to supply chain issues and rising prices. At the time of writing, the shares are down 16% year-to-date, however, they’re up 37% over a 12-month period. Currently hovering around the $1,000 mark, is now the time to buy Tesla shares for my portfolio? Or should I stay away from the world’s biggest electric vehicle manufacturer? Let’s take a look.

Reasons to be cheerful

Tesla recently released 2022 Q1 results, which filled investors with confidence. In fact, Tesla shares surged over 10% on the back of the positive news. Digging into the numbers, revenues rose 87% year-on-year, with gross profit rising a whopping 132% over the same period. In addition to this, the company is flush with over $2.2bn of cash, 660% higher than the same period last year.

The report also contained forward-looking guidance, which projects EV production to grow at 50% per year for the foreseeable future. This kind of growth will be vital if Tesla wants to retain its dominant market share against the fierce industry competition.

A key factor fuelling this growth will be the newly opened factory in Berlin. Since opening last month, the factory has reportedly hired over 8,000 of the 12,000 staff needed for capacity. Once the factory reaches full capacity, it will be able to produce 500,000 cars annually. For context, for the first three months of 2022, it produced 305,407 vehicles, so this is a huge step in the right direction.

Finally, Tesla also has a number of exciting new projects in the pipeline. One of these is the Tesla robo-taxi, which is an autonomous vehicle without a wheel or pedals. CEO Elon Musk reported that the taxi “would cost less per mile than a bus ticket” and would be ready for production in 2024. I think that the constant innovation that the firm delivers can support investors’ appetites for the shares.

Risks for Tesla shares

One risk that has been plaguing the entire EV industry for some time now is the supply chain shortage issue. This has been amplified by the Covid-19 pandemic. The 2022 Q1 report highlighted that “factories have been running below capacity for several quarters as supply chain became the main limiting factor, which is likely to continue through the rest of 2022”. This disruption could hold back the growth of Tesla shares.

The shares currently trade on an astronomical price-to-earnings ratio of 135. For context, good value stocks tend to trade on P/E ratios of under 10. However, this lofty valuation hasn’t turned investors away from the stock in the past, so I think it’s safe to say it could rise again, regardless of its crazy valuation.

What I’d do now

Overall, I think the future looks bright for Tesla considering the encouraging growth plans and good results. However, due to its lofty valuation and high volatility, I won’t be adding the stock to my portfolio today.

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Tesla shares are rising: should I buy now?

Dylan Hood — Thu, 24 Mar 2022 09:20:29 +0000

Tesla (NASDAQ: TSLA) shares have had a good week, up 19% over the past five days. The primary driver behind this is the new ‘gigafactory’ which has just been opened in Berlin. While this is good news in the short term, Tesla shares are still down over 16% year-to-date (although they’re up almost 60% over the past year). So, is now the right time for me to be adding the stock to my portfolio? Or should I be steering clear of the world’s biggest EV manufacturer? Let’s take a closer look.

Reasons to be cheerful

Firstly, as mentioned, the firm has just opened a new plant in Berlin. Tesla has reportedly already hired 3,000 out of the 12,000 expected workers, so things are definitely moving in the right direction. Once the factory is at full capacity, it will be able to produce 500,000 cars annually. To put this into context, Tesla produced 930,422 cars globally in 2021, so the new factory is a huge step forward in ramping up production.

In addition to this, the firm has already been posting some excellent results. In the 2021 Q4 results, revenues reached $15.9bn, rising 71% year-on-year. A 6% rise in margins also allowed profits to rise to $4.8bn, up 118% from the same period in 2020. Tesla is also flush with over $5bn in cash and negligible debts.

Tesla shares valuation

One concern I have always had about Tesla shares is their overvaluation. The stock currently has a price-to-earnings ratio of 204. Most good-value stocks operate with P/E ratios of under 10! In addition to this, Tesla’s competitors General Motors and Toyota trade on P/E ratios of 6.5 and 9.5, respectively.

Headwinds for Tesla shares

One big risk I see for Tesla shares is the threat of rising inflation and interest rates. Both are creeping up across the globe, with the UK and US central banks both hiking rates in the last week. The problem for Tesla is that when rates rise, investors tend to pull their money out of high-growth stocks, as they can generate higher returns from safer assets. This factor could stunt the future growth of Tesla shares.

In addition to this, supply chain shortages have been causing havoc across the EV industry. These shortages have been amplified by the covid-19 pandemic. Tesla released a statement in their Q4 report explaining that “factories have been running below capacity for several quarters as supply chain became the main limiting factor, which is likely to continue through 2022”. This could be a big factor that could hold the shares back from future growth.

What I’m doing now

Overall, I think Tesla is a great company. However, in my opinion, the shares are vastly overvalued and have been since mid-2020. While I don’t think this will change anytime soon, it doesn’t mean the shares won’t continue to rise. That being said, the threats above could stunt growth. For these reasons, I won’t be adding Tesla shares to my portfolio.

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Will Tesla shares climb back above $1,000 in 2022?

Dylan Hood — Mon, 07 Mar 2022 07:48:19 +0000

Tesla (NASDAQ: TSLA) shares reached their all-time high of $1,229 in early November 2021. However, since then the electric vehicle (EV) giant’s shares have tumbled almost 32%, currently sitting at $838. What’s more, in 2022 alone the shares are down 30%.

In an uncertain economic environment, do Tesla shares have what it takes to climb back above $1,000 during 2022? And as such, should I be considering adding the shares to my portfolio? Let’s take a closer look.

Reason for November price jump

The main reason why Tesla shares skyrocketed in November was due to a partnership announcement with Hertz. The car rental giant said it would be buying 100,000 Tesla vehicles to add to its fleet throughout 2022, which is expected to equate to a healthy $4.2bn for Tesla. This injection of cash throughout the year should help Tesla deliver more solid results.

In addition to this, in September 2021, the firm’s Model 3 sedan topped total new car sales in Europe, becoming the first fully electric vehicle in history to do so.

Growth in 2022

On 26 January 2022, Tesla released its 2021 Q4 results. Revenues came in at $15.9bn, up 71% year on year. In addition to this, profits rose an astounding 118% compared to Q4 2020, with margins rising over 6% in the process. Tesla is also in a great spot financially, with $17.6bn cash and negligible debts.

Although these results were extremely encouraging, Tesla shares dropped over 10% in the days after their release. This was largely due to wider issues concerning supply problems after Tesla affirmed that its “own factories have been running below capacity for several quarters as supply chain became the main limiting factor, which is likely to continue through 2022”. These supply issues are likely to be a threat to Tesla shares climbing back to $1,000.

Why I am not a fan of Tesla shares

It’s no secret that the Tesla share price is high and heavily overvalued, especially when considering its fundamentals. Tesla shares currently trade on a price-to-earnings (P/E) ratio of 171. For context, good value stocks usually trade on P/E ratios of under 10.

With such a high valuation comes volatility. As my fellow Fool, Cliff D’Arcy mentioned, between March 13 and March 20 back in 2020, the stock moved by over 12% every day, primarily due to high volume options trading. I’d be lying if I said this volatility didn’t worry me.

In addition to this, rising global interest rates are placing big pressure on growth stocks. When rates rise, people turn away from riskier investments, and hence valuations drop. For context, the S&P 500 Growth, a high-growth index, has dropped almost 15% in 2022. With Tesla’s high valuation and volatile price movements, I think interest rates pose a real threat to the shares.

Overall, I am sceptical about whether Tesla shares will be able to climb back above $1,000, especially considering supply chain shortages and the threat of rising interest rates. Although the firm continues to see great results, I think those broader factors outweigh any positives. Therefore, I won’t be adding any Tesla shares to my portfolio today.

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At under $1,000, is now the perfect time to buy Tesla stock?

Stuart Blair — Thu, 16 Dec 2021 07:41:35 +0000

Tesla (NASDAQ: TSLA) stock has been falling recently, and since the end of November, the share price has sunk 18%. After its 50% rise over the past year, this fall could be due to many investors banking profits. This has included Elon Musk, who is currently in the process of selling 10% of his Tesla stock. While this is partly due to tax reasons, he has also stated in the past that he feels the shares are too expensive. But as the Tesla share price has fallen below $1,000, is now the ideal time to buy?

High potential

There is no doubt that Tesla has a huge amount of potential. Indeed, even despite the challenges posed by the pandemic and the recent semiconductor shortage, car deliveries are still on track to rise by almost 70% year-on-year in 2021. It is also in the process of expanding vehicle production facilities, which should help continue this rapid growth. The introduction of new models will certainly help with this.

And growth in the past has also been tremendous. Indeed, in the third-quarter trading update, revenues totalled nearly $14bn, a 57% rise year-on-year. After managing to reach profitability in 2020, profits also keep on growing. In fact, in the third quarter they totalled over $1.6bn, a 389% rise from last year. This gives me hope that profits can continue to grow, and Tesla stock will hopefully rise as a response to this.

As such, especially due to the accelerated shift towards more green energy, Tesla is certainly full of potential.

The risks

Despite this excellent potential, there are valid reasons why Tesla stock has dipped recently. For one, it is still valued extremely highly, with a market cap near to $1trn. This means that Tesla is valued at higher than the next 10 largest automotive companies combined.

I worry that this valuation may be over-optimistic. For example, competition in the EV sphere is certain to increase. This includes Toyota, which recently announced that it would be investing $35bn in an electric push to take on Tesla. Further, Tesla also faces competition from other pure EV companies such as Lucid Motors and Rivian, both of which have completed IPOs recently. These are likely to take market share away from Tesla, and may slow growth.

From a valuation perspective, Tesla also trades at a forward price-to-earnings ratio of 120 and a current price-to-sales ratio of around 20. These are both very high and may indicate that the shares are still too pricey, despite the recent dip.

What am I doing with Tesla stock?

While I am very impressed with Tesla’s business, I still believe that it is overvalued. In many ways, I think this partially explains Elon Musk’s recent selling spree. As such, I won’t be buying Tesla stock just yet, as I feel that there is further to fall.

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Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Why did the NIO share price fall yesterday?

Dylan Hood — Sat, 04 Dec 2021 07:39:04 +0000

The NIO (LSE: NIO) share price has had a rocky ride over the past few weeks. Falling almost 9% yesterday, the electric vehicle (EV) manufacturer’s stock has fallen 38% year-to-date.

The resurgence of Covid-19 concerns is a driving factor behind the falling share price. As with many other industries across the globe, the EV sector was hit hard by supply shortages linked to the pandemic. In addition to this, the sector had already been suffering from the global semiconductor shortage, leading to NIO suspending production between March and April this year, causing a $60m loss.

This issue has plagued the firm more recently, with October car deliveries falling more than 65% from September to just 3,667, due to supply chain volatility. The Omicron virus variant may exacerbate these problems further, causing more manufacturing problems for it. This has been the case for the whole EV industry, with Tesla falling over 5% yesterday too.

Positive results

Although the Omicron virus poses a big concern for NIO, there are still some positives for the firm. For example, it announced on Wednesday that its deliveries for November totalled 10,878 vehicles. This is its best monthly total and over double the figure for November 2020. For now, this highlights that NIO is still growing quickly. If this continues then it could be a key driver behind the future growth of the share price.

In addition to this, Q3 results contained more positives for the firm. Vehicle sales increased 102% year-on-year and total deliveries reached their highest ever figure. In addition to this, vehicle margins reached 18% compared to 14% a year prior. Hopefully, this signals a move towards profitability for the firm.

Another positive that could boost the NIO share price, is the annual ‘NIO day’ which is coming up on 18 December. Here investors can expect to see new products and technologies from the firm, including two new models. Both are expected to be released in 2022.

Challenges ahead

Aside from the Omicron virus, NIO also faces some longer-term challenges moving forward. For me, the two main challenges are inflation and increased competition.

The US Federal Reserve has already announced it’s tapering its asset purchasing programme in order to control inflation. This is already starting to put weight on high valuation stocks, as investors rethink their strategies.

In addition to this, the intensely competitive EV market poses an increased risk for the firm. For example, Ford and General Motors have both announced setting aside billions of dollars for EV production. NIO will have to find new ways to stay competitive against these bigger, more efficient firms if it wants to stay afloat.

Overall, I think Omicron poses a short-term threat to the firm, highlighted by the fall in the NIO share price on Thursday. While I think NIO has a prosperous future, shown by encouraging growth and results, there are still challenges to overcome. I’m placing this stock on my watchlist for now.

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Dylan Hood has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Can Tesla shares climb back above $1,000 in November?

Dylan Hood — Tue, 16 Nov 2021 09:10:32 +0000

Tesla (NASDAQ: TSLA) shares soared over 50% in October, accelerating past the $1trn market cap mark. This trajectory has since slowed, with the current share price sitting at $985 and market cap sitting just below that $1trn level.

Tesla shares: up and down

The main reason for Tesla shares shooting up was the announcement by Hertz that it’s buying 100,000 Tesla cars to add to its rental fleet throughout 2022. The deal is reported to bring in a whopping $4.2bn for Tesla and is the largest ever purchase of electric vehicles, according to Bloomberg.

The share price was also helped by increasing European sales and increasingly bullish analyst estimates. In addition to this, the Model 3 sedan became the first fully electric vehicle in history to top new car sales in September in Europe.

Hertz has said that deliveries of the electric vehicles are already under way, which seems like great news for both companies. However, Musk then took to Twitter emphasising no contract had been signed and that vehicles would be sold for the same margin as to consumers. This pushed Tesla shares higher still, peaking at $1,229.

The shares have since fallen over 17%. A big reason for this is another tweet by Musk, where he informally asked his Twitter followers if he should sell his Tesla stock to satisfy tax obligations. The outcome was a near-$4bn sale of over 3.5mn shares. Tesla shares slumped 15% following the news.

Another spike?

It seems that Musk has the power to easily influence Tesla shares from his Twitter account. Therefore, in the immediate future, I don’t see why we couldn’t see another spike up above $1,000. However, this effect seems to work both ways, so we could see a drop of equal magnitude.

Longer term, it’s worth noting that Tesla released some excellent Q3 results in October. Automotive revenues were up 58% year-on-year, with EBITDA up 77% to £3.2bn. This is great news for shareholders, as is the fact that Tesla is now turning over comfortable profits after years of being a loss-making firm.

While this growth is great for Tesla shares, demand still far outweighs supply. In the case of Hertz, this means higher sales margins.However, more broadly, this could place a lid on Tesla’s growth. The global semiconductor shortage is still causing issues, and the pandemic is still hindering the industry’s recovery.

In addition to this, the electric vehicle market is heating up with much more competition. Although Tesla is a current industry leader, household automotive names like Ford and General Motors have set aside billions for EV R&D over the coming years.

Overall, I think that Tesla shares could easily jump back above 1,000p in the last few weeks of November. This is due to its past ups and downs plus its impressive growth. However, I won’t be adding this stock to my portfolio, as the price moves are too volatile for my liking.

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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Twitter. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Lucid Group and Tesla shares: should I buy these soaring EV stocks?

Stuart Blair — Mon, 08 Nov 2021 08:25:21 +0000

Both the Tesla (NASDAQ: TSLA) share price and the Lucid Group (NASDAQ: LCID) share price have been soaring recently. Indeed, Tesla has recently surpassed the $1,000 mark, valuing the company at over $1trn. This is an 184% rise over the past year. Lucid Group has also soared since going public via a SPAC deal in July. Since the company went public, it has nearly doubled in value. So, should I now be buying these EV stocks or am I too late?

Lucid Group has strong prospects

There is certainly a lot of promise surrounding Lucid Motors and I am most impressed about the company’s products. For example, its flagship product, the Lucid Air, claims a huge range of 520 miles, which easily beats all of Tesla’s vehicles. As of the end of June, there were also over 10,000 reservations for the Air. It is hoped that this figure will increase when the company reports to investors on 15 November. This is a factor that could see the Lucid share price soar.

Its future prospects also look strong. Indeed, total revenue is expected to be just over $2bn next year, rising to over $22bn by 2026. The group also predicts that it will be able to reach positive EBITDA by 2024. Of course, these are just estimates and there is certainly no guarantee that it will be able to reach these ambitious figures. It does demonstrate that the growth potential is extremely strong though, and some may say this gives Lucid even more upside potential than the Tesla share price.

But I’m not quite ready to buy Lucid shares. Using the company’s own estimates, it trades on a forward price-to-sales ratio of around 36, which is expensive. With a market capitalisation of nearly $70bn, it also has a similar valuation to BMW, even though BMW recorded revenues of over $100bn in 2020. Lucid Group, on the other hand, has no real trading history. This means that I cannot justify the Lucid share price, and I’m leaving it on the sidelines for now.

And the Tesla share price…

Tesla shares have soared recently, thanks to strong third-quarter earnings and a sale of 100,000 vehicles to Hertz. This has given the EV stock a valuation of $1.2trn, higher than other massive tech companies such as Meta (formerly Facebook) and Alibaba. But is this justified?

There is no doubt that the third-quarter trading update was excellent. In fact, revenues totalled nearly $14bn, a 57% rise year-on-year. Net income was also able to reach over $1.6bn, a 389% rise from last year. This demonstrates the rising profitability of the firm. The recent deal with Hertz, and continually increasing manufacturing capacity, is also likely to propel growth further.

But after the recent rise in the Tesla share price, it trades on a current price-to-sales ratio of around 24. Although slightly lower than Lucid Group, this is still comparatively high against other tech stocks. I’m also worried that competition will increase, especially as traditional automotive companies, like Ford and Daimler, are bringing EV cars to market. Therefore, even though I find Tesla stock a more appealing proposition than Lucid shares, it’s still far too expensive for me to buy right now. It will take a major dip to get me interested.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Stuart Blair has no positions in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.