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Is Tesla a good stock to buy right now?

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Is Tesla a good stock to buy?

Tesla’s stock has seen a sharp decline of approximately 30% over the course of this year. However, the stock demonstrated a robust resurgence following the release of the company’s remarkable first-quarter earnings report on April 23. This stellar performance has the potential to instill confidence in investors and garner their interest in considering Tesla stock due to its reputation and successful trajectory. But, is Tesla a good stock buy?

With shareholders’ meeting looming on June 13, CEO Elon Musk facing legal challenges, and the company venturing into new businesses amid growing competition, Wall Street analysts seem to be having a more cautious approach.

Upcoming shareholder vote

The upcoming Tesla annual general meeting on June 13 is poised to bring a significant decision to the forefront. Shareholders will cast their vote on whether to reinstate CEO Elon Musk’s pay package, which is currently valued at around $44.9 billion. This decision comes after a Delaware judge voided the previous pay package approved in 2018 earlier this year.

Philippe Houchois, a highly regarded 5-star analyst at Jefferies, believes that regardless of the outcome of the vote, a definitive settlement is unlikely

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“However ill-designed the scheme was, we believe denying Elon Musk his past compensation would look like misplaced ‘buyers remorse,’” states the analyst. “Conversely, veiled threats of taking AI business elsewhere look hollow given much investment Tesla has already made in AI.”

If you are wondering whether or not Tesla is a good stock to buy, keep in mind that, according to Houchois, Musk’s focus on tech innovation and his drive to dominate markets rather than competing for sustained value creation is a key strength. This leads him to suggest that the board should explore ways to reward Musk for technology milestones and introduce metrics for sustainable performance, potentially even breaking up Tesla into more focused entities. 

Elon Musk accused of insider trading

A Tesla shareholder named Michael Perry has filed a lawsuit against Elon Musk, accusing him of insider trading. Perry claims Musk sold $7 billion worth of Tesla stock in November and December 2022 before Tesla’s Q4 delivery numbers were disclosed on January 2, 2023, resulting in a drop in stock price.

According to Perry, Musk had insider information about lower-than-expected delivery figures and sold his shares before this information became public. Perry alleges that Musk’s insider profits from the sales summed $3 billion based on the January 3, 2023, closing price of $108.10 per share.

The legal battle doesn’t end there. It also accuses Tesla’s directors of permitting Musk’s stock sales and violating their fiduciary responsibility. The legal action aims to compel the court to instruct Musk to give back the profits generated from these transactions. Perry contends that if Musk had postponed the sale until after the negative news came out, his profits would have been much lower.

Increasing electric vehicle competition

While considering if Tesla is a good stock to buy, remember to consider its increasing competition.

Regarding the automotive industry, analyst Houchois believes that Tesla is currently losing its competitive advantage. The analyst thinks that the company’s vertical integration and innovative edge are diminishing. While Tesla’s efforts to standardize and scale vehicles are commendable, they may be premature in an industry driven by various models.

Forecasts for Tesla’s vehicle sales growth by 2030 have been revised significantly. For example, Morgan Stanley is aiming at 6.1 million sales by 2030, down from the previous estimate of 8.1 million. Meanwhile, BNP’s forecast is even more conservative, anticipating only 3.5 million sales by 2030, which is just slightly higher than the volume in 2023. The downward revisions are attributed to poorer-than-expected performance in the electric vehicle market segment and increased competition.

Tesla’s previously stated objective of selling 20 million vehicles annually by 2030 has been removed from its publications. Is Tesla a good stock to buy despite this?

It’s becoming increasingly clear that the assumption of Tesla maintaining a dominant position over competitors, who are investing heavily in electric vehicles, doesn’t align with the actual dynamics of the industry. Chinese companies like BYD, alongside numerous others, are capable of producing EVs competitively, as are major automakers like BMW, Ford, and Toyota. 

While Tesla may have held a substantial lead over its competitors in 2021, by 2024, this advantage has disappeared. Even if there are any remaining leads, they are not reflected in the financial performance.

New business ventures not working as expected

Tesla’s electric vehicle business is facing financial challenges. Is Tesla a good stock to buy considering its new initiatives? Actually, they may not be as groundbreaking as they seem.

Full Self-Driving

When it comes to autonomous driving, the business models appear uncertain, with unclear cost benefits compared to current ride-sharing companies. While FSD in China looks promising, it could also bring to light how China has used Tesla to boost domestic competition in the past.

With the escalating competition, there’s a likelihood that FSD technology will eventually become a standard feature in cars, devoid of its potential for monetization. For instance, despite the introduction of numerous new features in cars over the past few decades, the stock price of Ford hasn’t shown significant growth.

Robotaxi

Musk recently announced the unveiling of a Robotaxi starting August 8, 2024. However, if conventional car usage doesn’t yield profits and FSD faces intense competition, the potential revenue from integrating the two remains uncertain. 

Let’s assume that Tesla’s robotaxis completely replace Uber, which boasts a market capitalization of $134 billion, and this entirely adds to Tesla’s long-term value. Yet, this would only represent 23% of Tesla’s $572 billion market value.

Is Tesla a good stock to buy?

In the midst of Musk’s legal battles, Tesla’s stock performance is faltering due to a decrease in demand for electric vehicles and heightened competition. Year-to-date, TSLA stock has experienced a decline of approximately 28.33%, contrasting sharply with the S&P 500’s gain of nearly 10.6%.

Overall, analyst Houchois maintains a “Hold” rating on Tesla shares, accompanied by a price target of $165, indicating that the current stock value exceeds its perceived worth by 7%. 

This viewpoint is shared by many other Wall Street analysts, resulting in a consensus “Hold” rating for Tesla shares. The average price target is currently set at $174.60, suggesting that the stock will likely remain within a certain price range for the foreseeable future.

(Information in this post is for general informational purposes only. It cannot and should not be considered as suggestions or recommendations regarding investing or financial decisions.)

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