Tesla stock (Nasdaq:TSLA) has lost about 9% over the past five days, trading at about $244 per share. While the broader markets have been weak with the S&P 500 declining by about 4% over the same period, there have been a couple of other factors impacting Tesla stock. Tesla is likely to report its Q3 deliveries next week and there appears to be a strong possibility that the company could disappoint due to softer sales growth in China and planned factory upgrades, which could weigh on production. Separately, the E.U. has launched an investigation into whether China is providing unfair subsidies to Tesla and other manufacturers who export vehicles from China into the bloc. Tesla currently exports its Model 3 sedans from its Shanghai factory into Europe.
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.
That being said, there have been a couple of positive developments for the stock as well. Earlier this month, Tesla unveiled an updated version of its Model 3, marking the vehicle’s first refresh since its debut in 2017. The vehicle will offer minor changes to both its exteriors and interiors while offering a larger range. This could help to boost sales to an extent. Separately, the United Auto Workers strike which is impacting the big three Detroit automakers is likely to benefit Tesla, which has thus far resisted unionization. The strike could widen Tesla’s first-mover advantage in the EV space, as major U.S. automakers in the midst of a costly transition to electric vehicles, could see substantially higher labor costs for U.S. hourly workers.
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- Will Tesla’s Booming Energy Storage Business Help Its Stock?
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- Does Tesla’s Move To License FSD Make The Stock More Attractive?
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 cleaner transportation and energy generation, with the company benefiting from its well-oiled supply chain, superior battery and drive train tech, and its lead with software and self-driving technology. However, Tesla stock presently trades at over 70x forward consensus earnings, which could limit near-term upside. Competition is also mounting and Tesla has announced several price cuts over the past few months in both the United States as well as China to stoke demand, and this move is impacting margins. Tesla’s earnings for 2023 are projected to decline year-over-year. 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%||11%||91%|
|Trefis Reinforced Value Portfolio||-7%||22%||527%|
 Month-to-date and year-to-date as of 9/27/2023
 Cumulative total returns since the end of 2016
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