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Tesla’s Growth could be Headed for a U-Turn

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A flurry of bearish catalysts for Tesla (TSLA) stock appear to be piling up. Investors who have bought and held this stock over the past decade have seen absolutely insane returns. The question of whether Tesla has grown to a size that doesn’t make sense anymore is a topic of conversation for many investors.

At this point, the company has been valued at just shy of $600 billion. (See Tesla stock analysis on TipRanks)

For investors on the fence with Tesla, it pays to be aware of some bearish catalysts facing Tesla stock right now.

Tesla Stock Could be In For Some Pain

There are several pertinent bearish catalysts about which Tesla investors could be cautious.

For one, broadly speaking, EV stocks have been hit by inflation-induced bond yield increases in recent months. Indeed, all growth stocks have this headwind to contend with at the moment. Additionally, as has been known for awhile, a global EV chip shortage is threatening production numbers for all high-growth EV players such as Tesla.

Moreover, earnings quality has become a big issue for investors. The fact that Tesla’s still losing a ton of money making electric vehicles, yet is able to report a profit due to unsustainable cash flow streams (namely, Bitcoin trading and the sale of emissions credits), is worrisome to many long-term investors.

Also, valuation concerns have begun to take hold with Tesla stock. This stock still trades at more than 16 times sales and 600 times earnings. As mentioned above, those earnings primarily comprise non-operating profits.

One of the most famous investors of our time, Michael Burry, who is known for his role in The Big Short, has placed an absolutely massive short bet on Tesla. His recently-filed form 13-F spells out an incredible short, the likes of which we haven’t seen in a long time. Obviously, Burry is not predicting continued growth for Tesla.

Another worry concerns Chinese orders for Tesla vehicles, which were nearly cut in half last month. This comes as U.S.-China tensions ramp up. China is the largest global market for electric vehicles, accounting for approximately one half of the global EV market. Thus, Tesla’s key growth engine appears to be revving down considerably.

Finally, the intense level of competition in the global EV market is heating up in an incredible fashion. Competitors are producing more EVs at better price points than Tesla. Their EVs offer technological improvements and product enhancements that close the rather large gap Tesla had in this regard not too long ago.

How Much Weight Should Investors Give These Catalysts?

Investors in Tesla may still argue that there are reasons to own Tesla stock. Among the key reasons to be bullish on Tesla are Gigafactory projects in Berlin and Texas. Tesla believers are hopeful these projects will be able to potentially increase production capacity by as much as 500% overall.

However, given global chip shortage issues and the rise of competitive forces and nationalistic endeavors from key markets such as China, the global sales outlook for Tesla may simply not be as bright as many Tesla investors may want to believe. Producing cars is fantastic. However, it’s unclear whether Tesla will see the kind of sales numbers materialize in a few years’ time when more players hit the market and aggressively compete for the growing market Tesla has (mostly) had all to itself for quite some time.

Additionally, CEO Elon Musk has continued to promise full self driving technology and robotaxis for years. While these have yet to materialize, one Chinese company Baidu (BIDU) has already launched a fully autonomous robotaxi service in Beijing. Accordingly, this is a technological race it appears Elon Musk’s team has lost.

What Analysts Are Saying About TSLA Stock

According to TipRanks’ analyst rating consensus, TSLA stock comes in as a Hold. Out of 23 analyst ratings, there are 10 Buy recommendations, 7 Hold recommendations, and 6 Sell recommendations.

As for price targets, the average analyst price target is $639.81, with a potential upside of 4.9%. Analyst price targets range from a low of $67.00 per share to a high of $1,080.00 per share.

Bottom Line

Tesla is a mega-cap company for a reason. This company’s brand and passionate CEO are the reasons most investors continue to hold on to these shares.

However, given other recent catalysts bearish to the Tesla discussion, there may be more downside on the horizon.

Investors should always be reminded that trees don’t grow all the way to the sky. When stocks get this large, growth tends to slow. It is wise for investors to remain cautious about placing outlandish growth expectations on companies valued as highly as Tesla. At some point, the valuation stops making sense.

Disclosure: Chris MacDonald held no position in any of the stocks mentioned in this article at the time of publication.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

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