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How Analysts Rate Tesla Stock amid the Tech Sell-Off?

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While US stocks recovered last week, not all are convinced that the sell-off in tech names is over. Tesla, which soared 740% and 50% in 2020 and 2021 respectively, is down almost 27% this year so far.

Tesla stock has also been in the news amid the flip-flops made by its CEO Elon Musk. Musk initially took a 9.1% stake in Twitter and later offered to buy the company at $54.20 per share. Now, he has said that he is putting the deal on hold as he figures out the fake accounts on the microblogging site. Tesla stock has also whipsawed amid the noise over Musk’s Twitter takeover. What’s the forecast for TSLA stock and how do analysts view the company?

Tesla reported better than expected earnings

Tesla reported revenues of $18.76 billion in the first quarter of 2022 which were 81% higher than the corresponding period last year and better than the $17.80 billion that analysts were expecting. The Elon Musk run company posted an adjusted net profit of $3.6 billion, which was another record. The stellar performance was led by both higher deliveries as well as higher vehicle prices. Also, the company has been achieving economies of scale which is leading to structurally higher margins.

Notably, during their Q3 2019 earnings call, Tesla said that it would be structurally profitable in the future. Not many trusted the forecast as the company had until then posted a profit in only a handful of quarters. Also, Musk had been making ambitious forecasts in the past. However, the company has posted a net profit every quarter since then.

Deliveries

TSLA produced 305,407 electric cars in the first quarter of 2022 and delivered a total of 310,048 cars. The company said that it managed to increase its production “despite ongoing supply chain challenges and factory shutdowns.”

Looking at the delivery report, Tesla delivered 295,324 Model 3/Y in the quarter which was over 95% of its total deliveries in the quarter with the higher-priced Model X/S making up for the rest.

Tesla deliveries almost 1 million cars in 2021 and expects the 2022 deliveries to be around 1.5 million. It expects the deliveries to rise at a CAGR of 50% for the next several years. Tesla has scaled up production at the Freemont and Shanghai plants. The Berlin Gigafactory has also come online which would be followed by the Texas plant. The ramp-up of new plants would help drive the company’s deliveries in the long term.

Near term concerns

In the near term, there are multiple concerns for Tesla investors. On the macro level, we have the derating of growth and tech companies amid the rapidly rising bond yields. Concerns over a possible recession in the US, which is Tesla’s biggest market, have also been weighing heavy on the stock.

Then we have automotive industry-specific factors which include the supply chain issues and the rising input costs. To be sure, Tesla has managed both these issues much better than other automakers. While it has had to delay the launch of new vehicles to 2023 amid supply chain issues, its deliveries have been rising at a fast pace.

On a more company-specific level, concerns over Musk splitting time between Tesla and Twitter are also making markets apprehensive. Also, the stock is trading at a significant premium to other electric vehicle stocks.

How do analysts rate Tesla stock?

Wall Street analysts are divided on Tesla stock—just as they have been always. Wells Fargo maintained its equal weight rating on the stock while lowering the target price from $960 to $900. It said, “Currently, TSLA has been passing along price increases before the impact of the raw material increase. This has been supportive of margins. However, once contracts get reset at spot or close to spot, the underlying inflation will eventually catch up with margins.”

Bank of America also lowered its target price from $1,300 to $925. It said, “Following the quarter, we raised our forward estimates, but maintained our $1,300 PO. However, we are now lowering our price objective from $1,000 to $925 on lower assumed multiples with the market sell-off, specifically now based on ~13x EV/Sales and ~55x EV/EBITDA (prior 18x, 78x) on our 2023 estimates.”

TSLA bulls see a buying opportunity

Tesla bulls see the sell-off in the stock as a buying opportunity. Morgan Stanley has maintained its bullish bet on the stock, as has Wedbush Securities. Wedbush analyst Dan Ives believes the tech sell-off is an opportunity to buy some of the tech stocks.

He said, “We view this historic sell-off as more of a generational buying opportunity for the right tech names/ winners in 2023 and 2024 rather than a time to throw in the towel on the tech sector with a piling on effect we are seeing take place on the Street today.” Tesla is among the top picks for Ives.

Tesla stock forecast

Gene Munster of Loup Ventures expects Tesla’s market capitalization to rise to $2 trillion by 2023. Munster had correctly predicted Apple’s market capitalization to reach $2 billion. Cathie Wood of ARK Invest expects Tesla stock to rise to $3,000 by 2025. Wood has been a long-time Tesla bull and ARK holds the stock in several ETFs including the flagship ARK Innovation ETF (ARKK) where the Elon Musk-run company is the top holding.

Wood was recently in the news when she sold some Tesla shares and instead bought General Motors. However, still TSLA remains a top holding for the fund which has seen a severe sell-off over the last year.

Should you buy TSLA stock?

With a cult-like following for Musk and an attractive product proposition from Tesla, it is tough for any automaker to match the package. Apart from the growing automotive sales, the software side of the business would drive value for investors in the long term. Musk believes that eventually, the energy business would be as large as the automotive business. If the company can deliver on these forecasts, just as it has on sustainable profitability, Tesla could continue to deliver good returns for investors over the medium to long term.

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Users should remember that all trading carries risks and users should only invest in regulated firms. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.

Mohit Oberoi is a freelance finance writer based in India. he has completed his MBA with finance as majors and also holds a CFA charter. He has over 13 years of experience in financial markets. He has been writing extensively on global markets for the last six years and has written over 6,500 articles. He mainly covers metals, electric vehicles, asset managers, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.