Tesla: Should You Buy Or Sell The Stock After This Year's $350 Billion Wipeout?
Haris Anwar | Jul 08, 2022 12:40PM ET
- The world’s largest EV maker has lost almost a third of its value since January
- Tesla bulls are optimistic that after this massive correction, this is a good time for long-term investors to enter this trade
- Tesla continues to face multiple challenges in the months ahead that could keep its stock depressed
- Any company’s financials for the last 10 years
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- A fair value calculated from dozens of financial models
- Quick comparison to the company’s peers
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The current market rout has been especially challenging for investors of Tesla (NASDAQ:TSLA). After surging 1,163% between January 2020 and January 2022, the world’s largest EV maker shed almost a third of its value since the start of the year—a wipeout that erased around $350 billion in market valuation.
Despite the ongoing selloff, Tesla bulls remain optimistic that things will start to turn around after this massive correction. They believe Tesla stock will rebound over the next 12 months as supply-chain disruptions ease and the company ramps up production at its various factories.
Deutsche Bank said in a note this week that the Texas-based EV maker looks attractive and should see a “sharp recovery” in the year’s second half. The bank reiterated its buy rating on Tesla, keeping its price target on the stock at $1,125, which is around 50% above current prices.
h2 Fewer Deliveries/h2However, it remains difficult to call a bottom here, as the EV maker faces multiple challenges in the months ahead.
The latest evidence that things are turning sour for the Elon Musk-owned company emerged last week during its latest delivery report. Figures showed that Tesla delivered fewer cars than the previous quarter, snapping a two-year streak of quarter-on-quarter gains, as a COVID-related shutdown at its factory in Shanghai took a toll on production.
For the third quarter, the situation doesn’t look promising either. According to a Bloomberg last month, Tesla will halt most production on its Model Y assembly line in Shanghai for the first two weeks of July, then stop the Model 3 line for 20 days starting July 18.
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Furthermore, on Monday, TeslaMag the carmaker’s plant near Berlin would take a two-week break starting July 11.
h2 Another 48% Downside/h2On top of these short-term production challenges, growing macroeconomic headwinds can keep hurting high-growth stocks for longer.
The biggest issue is soaring inflation and the Fed’s fight to contain it. If this battle pushes the economy into a deep recession, demand for durable, expensive items, including cars, will most likely suffer.
While Tesla is undoubtedly in a better position than most of its competitors to fare through this economic downturn due to its substantial pent-up demand, it is still not immune to a broad economic slowdown.
JPMorgan last week reiterated Tesla as “underweight” and cut its price target to $385, which implies a 48% drop from today’s price.
The investment bank also dropped Tesla’s second-quarter earnings per share estimate to $1.70 from $2.26 and the full-year estimate to $10.80 from $11.50, warning of the potential for sharp battery metals inflation to cut into Tesla’s profits.
The note says:
h2 Twitter Acquisition/h2“While Tesla does not provide a detailed earnings bridge similar to most other automakers ... and much focus is today on volume, we suspect that the interplay of price and cost may matter most for Tesla earnings this year.”
Adding to the already-cited issues, some investors remain unsure whether it’s a good idea to buy Tesla stock when CEO Elon Musk is dragging his feet on a deal to buy Twitter Inc (NYSE:TWTR).
Tesla stock shed about 42% since April 4, when Musk first reported taking a 9.2% stake in Twitter, becoming the company’s biggest shareholder. He later agreed to buy the social-media company for $54.20 a share, deepening the stock’s fall.
TSLA shareholders fear the deal could become a tremendous financial liability for the company. Furthermore, they worry Musk would be spread too thin trying to overhaul Twitter while running Tesla and overseeing his Space Exploration Technologies Corp.
Nonetheless, Musk’s proposed acquisition of Twitter may fall apart over his doubts that the company is accurately reporting the number of spam bots on the service, according to the Washington Post.
h2 Bottom Line/h2There is no doubt that Tesla shares offer a reasonable entry point to long-term investors with the stomach to face the global economy’s various risks. However, they should note that investing in the company is not for everyone, given its highly volatile trading pattern and its CEO’s unpredictable behavior.
Disclosure: the writer does not own shares of Tesla.
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