Down 50% This Year, Is Tesla Stock A Buy?

Tesla (NASDAQ:TSLA) stock has seen considerable selling pressure losing about 50% of its value over the year. While growth stocks in general have been hit by high inflation and rising interest rates, Tesla faces a couple of other challenges. Firstly, there are real concerns that demand could be slowing down, particularly in China, which has been a big source of growth for Tesla. The company cut prices of its Model 3 and Model Y cars by as much as 9% in China in October, and Bloomberg recently reported that Tesla has planned to scale back production of the Model Y by 20% at its Shanghai factory. Separately, Tesla continues to be weighed down by CEO Elon Musk’s recent acquisition of the social media app Twitter.  Although Mr. Musk purchased the social media company in his personal capacity, he has been offloading Tesla stock to fund the purchase and free up liquidity to manage the loss-making social media company, which has a massive debt load. This has created an overhang over the stock. The Twitter acquisition might also be seen as an unwanted distraction for Mr. Musk, forcing him to take time away from his role at Tesla.

We have reduced our price estimate for Tesla stock by about 10% to $272. However, our price estimate still remains about 50% ahead of the current market price.  Tesla’s execution has been solid so far and the company has a goal of growing its deliveries by over 50% each year over a multi-year horizon. While this plan could be challenged in the near term given the mounting economic headwinds, Tesla should remain a big beneficiary of the long-term transition to electric drivetrains. Production capacity has traditionally been a big bottleneck for Tesla and the company has been addressing this,  with new factories in Texas and Berlin coming online and ramping up capacity. Tesla is also slated to bolster its model lineup.  The Cybertruck pickup truck is likely to go into production next year while deliveries of the semi truck recently began. Tesla’s margins are also among the highest in the auto industry and this should enable the company to be solidly profitable as sales rise further. See our analysis on Tesla Valuation: Is TSLA Stock Expensive Or Cheap? for more details on Tesla’s valuation and how it compares with peers. For more information on Tesla’s business model and revenue trends, check out our dashboard on Tesla Revenue: How TSLA Makes Money.

[1] Month-to-date and year-to-date as of 12/10/2022
[2] Cumulative total returns since the end of 2016