Is Tesla a good long-term stock?

Oct.27, 2024, 00:37AM PT, by: StockHawk (origin link)

Tesla, Inc., a pioneering force in the electric vehicle and clean energy sectors, has revolutionized the automotive industry. Founded in 2003, the company has rapidly grown into a global powerhouse, renowned for its innovative electric vehicles, advanced battery technology, and ambitious goals for sustainable energy solutions. With a strong focus on cutting-edge technology, sleek design, and a loyal customer base, Tesla has captured the imagination of consumers worldwide and positioned itself as an EV leader. This analysis delves into its recent financial performance, examines the factors driving its short-term performance, and provides insights into its long-term value potential, specifically within its core vehicle business.

Note: The following analysis is based on historical data and industry trends, and does not constitute financial advice.

 

Q3 earning

Tesla reported a strong third quarter, delivering $2.17 billion in profit, surpassing the $1.85 billion earned in the same period last year. While revenue increased 7.8% to $25.18 billion, it fell slightly short of Wall Street's expectations of $25.47 billion. However, Tesla's adjusted earnings per share of 72 cents significantly exceeded analyst forecasts of 59 cents. Tesla stock price rises to $269 area. This robust performance raises questions about Tesla's trajectory. Now, let’s examine the key factors driving its strong third-quarter sales.

 

EV Incentives

Tesla's Q3 performance was a rollercoaster ride. While the company delivered a solid financial report, the road ahead remains uncertain. One of the significant factors that I noticed is governments' EV incentives. There are 44 states that have various EV incentives, including the $45 millions EV rebates in Washington state; they played a crucial role in boosting EV sales, including Tesla's. These programs made electric vehicles more affordable for low-income families, providing a temporary surge in demand. However, as these incentives dry up or change, it's unclear whether Tesla can sustain this momentum.

From above chart, Tesla's growth trajectory seems to be leveling off. While the first three quarters of 2024 saw comparable deliveries to the same period in 2023, the momentum from previous years appears to be waning.

The company's peak quarterly delivery of 485,000 units in Q4 2023 set a high bar. As we approach the end of 2024, it remains to be seen whether Tesla can replicate or surpass this performance. The market will be watching closely to determine if Tesla can rekindle its growth engine or if a period of consolidation is on the horizon.

 

Competition & long term margin

Tesla's once-dominant position in the electric vehicle market is facing increasing pressure from both traditional automakers and emerging EV startups. Companies like Ford, GM, Volkswagen, Hyundai, BYD, NIO, Rivian, and Lucid are investing heavily in electric vehicle technology, battery production, and charging infrastructure to challenge Tesla's lead.

This intensified competition is driving down prices and squeezing profit margins across the industry. As manufacturers ramp up production to meet growing demand and compete for market share, they are forced to reduce costs. Additionally, government incentives, while encouraging EV adoption, also contribute to a price war, further eroding profit margins.

While Tesla remains a strong player, the future of the EV market is becoming increasingly competitive. As more players enter the field and technology advances, it's likely that profit margins will continue to decline, shaping a new era of the electric vehicle industry. PS, here are the other brands that I saw in my small community,

 

Conclusion

Tesla, while a pioneer in the electric vehicle market, is diversifying its business into areas like autonomous driving software, energy storage, solar panels, and artificial intelligence. While these ventures hold significant future potential, they currently contribute minimally to the company's bottom line.

In the core automotive business, Tesla's sales growth appears to be stabilizing around 1.8 to 2 million units annually. To further penetrate the market, Tesla would need to introduce more affordable models tailored to specific regional needs. However, this strategy would likely involve lower profit margins and increased competition.

Given these factors, Tesla's stock valuation is expected to remain volatile, fluctuating between $200 billion and $800 billion over the next five years. This translates to a stock price range of $65 to $260. The stock price will be extremely volatile, heavily influenced by quarterly earnings, news from Elon Musk, and overall investor sentiment. While Tesla's innovative spirit and ambitious goals are undeniable, its future trajectory will depend on its ability to navigate these challenges and capitalize on emerging opportunities.

Please feel free to share your thoughts on $TSLA through EMAIL; I'm always interested in hearing your perspectives.