Tesla (NASDAQ:TSLA) stock has done exceedingly well, rising by over 93% year-to-date . While Tesla’s deliveries have surged driven by price cuts to popular models, with revenue surging by 47% in the most recent quarter, Tesla plans to open up its supercharger network and potentially license its full self-driving (FSD) technology to third-party automakers. Tesla is also prepping for the big launch of its cyber truck pickup after over two years of delays. So will the new electric truck drive the next leg of Tesla stock’s rally?
We note that TSLA stock has had a Sharpe Ratio of 0.9 since early 2017, which is better than 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.3 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
Expectations for the new vehicle – which features a radical and rugged design and high-end performance – are lofty, with Tesla’s CEO calling the vehicle the company’s “best product ever.” Tesla has also indicated in an earnings call earlier this year that it could sell between 250,000 and 500,000 units of the vehicle per year once production is fully ramped up. However, there are multiple questions as well. Ford – the market leader in the pickup segment – shipped a little over 650,000 vehicles last year, indicating that Tesla’s forecasts could be too high. Moreover, the pricing for the vehicle isn’t clear yet. While Tesla initially pointed to a starting price of under $40,000 for a base version of the vehicle following the initial unveil, prices have since been removed from Tesla’s website and it is possible that prices – which will now be unveiled at a handover event scheduled for the end of this quarter – could be higher.
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Although the U.S. pickup truck market is large with volumes for the top five players standing at close to three million units per year, the Cybertruck could end up being a more niche product for Tesla, given that the focus will be more on the U.S. market, unlike the company’s other products that have seen strong adoption overseas. Competition is also strong. EV upstart Rivian’s R1T pickup truck is exceedingly well-reviewed. Similarly, mainstream pickup manufacturers are also seeing traction with their electrification plans, with Ford’s electric version of its iconic F-150, called the Lightning, seeing robust demand following recent price cuts. Customer loyalty in the truck market is also apparently very high, meaning that Tesla could have a tough time going after existing owners.
We currently remain neutral on Tesla stock, with a $263 price estimate, which is slightly ahead of the current market price. We continue to believe that Tesla will remain a big beneficiary of the long-term transition to electric vehicles given its well-oiled supply chain, superior electric drivetrains, and its lead with software and self-driving technology. However, Tesla stock presently trades at 75x forward consensus earnings, which could limit near-term upside. Tesla’s earnings for 2023 are also projected to decline year-over-year as automotive margins face pressure on account of price cuts and contracting gross margins. 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 Does TSLA Make Money?
|S&P 500 Return||-5%||14%||95%|
|Trefis Reinforced Value Portfolio||-5%||29%||564%|
 Month-to-date and year-to-date as of 8/27/2023
 Cumulative total returns since the end of 2016
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