Last year was brutal for Tesla (NAZDAQ: TSLA) stock, which crashed 65%. It has now fallen 75% since its peak in November 2021.
It marks yet another turbulent year for Tesla founder and chief executive Elon Musk too, who has now suffered the largest ever financial loss in history. His personal fortune, mostly in Tesla shares, fell an estimated $182bn.
The big divide
Inevitably, investors now divide into two camps. Those who think Tesla has been driven into a ditch as Musk gets distracted by his $44bn Twitter purchase, and a loyal hardcore who reckon this is a massive opportunity to buy its stock on the cheap.
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Tesla’s valuation is a lot more tempting than it was. Its price-to-earnings (P/E) ratio topped a staggering 1,274 in December 2020. Today’s 12-month P/E ratio looks dirt-cheap by comparison at 21.38 times earnings. Yet that’s still more than four times General Motors’ current 5.18 times earnings while Ford is at 5.81 times.
Old-school motor manufacturers are also eating into Tesla’s share of the electric vehicle (EV) market. Others fear the EV revolution caught soon hit the wall, with sales falling as charging networks fail to keep pace and driver frustrations grow.
Higher lithium costs won’t help. Nor will the risk of future Chinese Covid lockdowns, as the country is a huge market for Tesla. The IMF forecasts a third of the world to tip into recession this year, which will make the going even stickier. Then we have the whole Twitter furore, which has become politically poisonous, and a distraction for Musk.
Lest we forget, Tesla is profitable, with Q3 revenues of $21.45bn and net income of $3.3bn, boosted by energy storage and regulatory credit revenues.
It’s still electric
Personally, I love buying top stocks that have fallen out of favour, and are trading at much lower valuations as a result. My concern is that Tesla was so massively overvalued that it now looks cheaper than it really is. Just because they stock has fallen from $415 to $100, doesn’t mean it can’t fall again to $50.
The share price is up around 15% year-to-date, which will tempt some. But I’m wary, as this could be a ‘dead cat bounce’.
Once the US Federal Reserve pivots on interest rates, growth stocks like Tesla should swing back into favour. Yet I don’t expect a return to the glory days of US tech. Interest rates will probably never be as low again, nor will stimulus be as high, or investors as credulous. Tesla has to tackle much tougher terrain today.
I find it hard to bet against Elon Musk though. The man is some kind of genius, even if his harsher critics say otherwise. I’d like to buy Tesla stock, but I’m not doing so at the moment.
The problem is that I can’t quite get a clear handle on where it goes next. It could easily fall further, at least until the Fed pivots and investor animal spirits return. I’m minded to give it a few months before adding it to my portfolio.
