Tesla Stock: A Promising Investment or Cause for Concern?
Tesla (TSLA) has experienced a tumultuous start to the year, with its stock losing over a third of its value. Despite the significant dip, the stock has not become considerably cheaper according to key metrics.
Investors and Wall Street analysts often tout stocks that have plummeted in value as buying opportunities due to the perceived undervaluation. However, the downward trajectory of Tesla’s stock price can be attributed to declining earnings estimates and weaker-than-expected deliveries, rather than a significant drop in valuation.
As of March 15, Tesla’s stock is down 34.2% for the year, making it the worst-performing stock on the S&P 500. It is also trading 60.5% below its all-time high in late 2021. Despite these figures, Tesla’s valuation has closely followed declining earnings estimates, indicating that the market has responded accordingly to the company’s financial performance.
Tesla Stock Valuation
| Date | Tesla stock price | 2024 EPS estimate | 2024 P-E ratio | 2025 EPS estimate | 2025 P-E ratio |
|---|---|---|---|---|---|
| Dec. 30, 2022 | 123.18 | $7.07 | 17.4 | $7.93 | 15.5 |
| March 31, 2023 | 207.46 | $5.62 | 36.9 | $6.95 | 29.8 |
| Sept. 29. 2023 | 250.22 | $4.68 | 53.5 | $6.21 | 40.3 |
| Oct. 31, 2023 | 200.84 | $3.93 | 51.1 | $5.54 | 36.2 |
| Nov. 30, 2023 | 240.08 | $3.85 | 62.3 | $5.40 | 44.5 |
| Dec. 29, 2023 | 248.48 | $3.79 | 65.5 | $5.27 | 47.2 |
| Jan. 31, 2024 | 187.29 | $3.14 | 59.7 | $4.38 | 42.8 |
| Feb. 29, 2024 | 201.88 | $3.10 | 65.2 | $4.25 | 47.5 |
| March 15, 2024 | 163.57 | $2.97 | 55.0 | $4.06 | 40.2 |
| 2.62* | 62.4 | ||||
| *Sharp consensus of recent analyst forecasts |
According to FactSet, analysts have progressively lowered their 2024 earnings per share (EPS) targets for Tesla. The estimates have decreased from $7.07 at the end of 2022 to $2.97 as of March 15, 2024. This decline in earnings expectations has contributed to a decrease in Tesla’s forward price-earnings (P-E) ratio, which currently stands at 55.0.
Further scrutiny reveals that Tesla’s stock valuation is considerably higher than that of other profitable automakers. For instance, Toyota Motor (TM) has a forward P-E ratio of 9, while General Motors (GM) has a forward P-E ratio of 4. Among electric vehicle (EV) players, fast-growing Li Auto (LI) has a forward P-E ratio of 17, and EV giant BYD (BYDDF) has a forward P-E ratio of 14. The only company comparable to Tesla in terms of valuation is Ferrari (RACE), with a forward P-E ratio of 50.
Although some analysts and investors place their hopes for Tesla’s stock price beyond 2025, anticipating the company’s next-generation small EV or even ventures beyond electric vehicles, there is no denying that Tesla’s valuation remains high. The market has bet heavily on Tesla’s success in areas such as self-driving, robotics, and artificial intelligence. However, whether these moonshot endeavors will yield significant profits is uncertain.
Given Tesla’s status as a growth company, it is important to consider the implied growth potential and emerging trends within the EV industry. The current downward trend and declining earnings estimates highlight the need for careful analysis and discernment before making investment decisions in the EV sector.
Potential Future Trends and Recommendations
Looking at the broader industry landscape and emerging trends, several potential future trends can influence the trajectory of Tesla and the EV market:
- Government Policies and Regulations: The global shift towards sustainable energy and reduced carbon emissions is likely to result in an even greater focus on EVs. Governments worldwide are implementing policies and regulations to incentivize the adoption of