The electric vehicle market is booming thanks to growing climate change concerns, government incentives, and the expansion of charging infrastructure. EV major Tesla, Inc. (TSLA) has been one of the first movers in the battery electric vehicle (BEV) space. TSLA has a dominant share in the EV market, but its market share has declined off late due to the shifting focus of traditional automakers on EVs.

In this piece, I have discussed why waiting for a better entry point in TSLA could be prudent.

As the adoption of battery electric vehicles grows, more and more automakers enter the fray to grab a pie of the highly lucrative EV market. Traditional automakers are slowly shifting their focus from internal combustion engine (ICE) vehicles to electric vehicles (EVs), with many planning to phase out their entire ICE vehicle lineup as early as 2030.

Strict government regulations on emission standards, incentives for EVs, and improving charging infrastructure are driving EV sales. According to Goldman Sachs, electric vehicles will comprise about half of all new car sales worldwide by 2035.

TSLA’s EPS and revenue missed analyst estimates in the first quarter. The company’s EPS was 0.4% below the consensus estimate, while its revenue missed analyst estimates by 0.1%. Despite higher sales, TSLA’s net income during the first quarter took a hit due to price cuts undertaken by the company.

The company attributed the year-over-year drop in earnings to the underutilization of new factories, which stressed margins, higher raw material, commodity, logistics, and warranty costs, and lower revenue from environmental credits. During the earnings call, CEO Elon Musk emphasized that the uncertain macroeconomic environment could impact new car purchases.

Musk said, “We’ve taken a view that pushing for higher volumes and a larger fleet is the right choice here, versus a lower volume and higher margin,” but noted that he expects TSLA’s vehicles “over time will be able to generate significant profit through autonomy.” In 2023, TSLA expects to produce 1.8 million vehicles.

During the second quarter, TSLA produced nearly 480,000 vehicles and delivered over 466,000. However, according to Bank of America analysts, TSLA’s share of the U.S. EV market will drop to 18% by 2026. This would mark a significant decline from the peak of 78% market share in 2018 and 62% in 2022.

Primarily, legacy automakers like Ford Motor Company (F) and General Motors Company (GM) are expected to chip away at TSLA’s market share.

TSLA’s shares have gained 156% in price over the past six months and 129.3% year-to-date to close the last trading session at $276.54.

Here’s what could influence TSLA’s performance in the upcoming months:

Mixed Financials

TSLA’s total revenues for the first quarter ended March 31, 2023, increased 24.4% year-over-year to $23.33 billion. Its total automotive revenues increased 18.4% year-over-year to $19.96 billion. In addition, its cash, cash equivalents, and investments rose 24.4% over the prior-year quarter to $22.40 billion.

Its adjusted EBITDA declined 15.1% over the prior-year quarter to $4.27 billion. The company’s non-GAAP net income attributable to common stockholders decreased 21.5% year-over-year to $2.93 billion. Also, its non-GAAP EPS came in at $0.85, representing a decline of 20.6% year-over-year.

Mixed Analyst Estimates

Analysts expect TSLA’s EPS for fiscal 2023 to decline 12.9% year-over-year to $3.54. Its EPS for fiscal 2024 is expected to increase 43.8% year-over-year to $5.10. Its fiscal 2023 and 2024 revenues are expected to grow 24% and 29% year-over-year to $101.03 billion and $130.29 billion, respectively.

Its EPS and revenue for the quarter ended June 30, 2023, are expected to increase 8.2% and 45.7% year-over-year to $0.82 and $24.68 billion, respectively.

Stretched Valuation

In terms of forward EV/EBITDA, TSLA’s 49.13x is 416.4% higher than the 9.52x industry average. Likewise, its 8.71x forward EV/S is 637.5% higher than the 1.18x industry average. Its 79.56x forward non-GAAP P/E is 444.9% higher than the 14.60x industry average.

High Profitability

In terms of the trailing-12-month net income margin, TSLA’s 13.66% is 225.3% higher than the 4.20% industry average. Likewise, its 19.37% trailing-12-month EBITDA margin is 81.8% higher than the industry average of 10.65%. Furthermore, the stock’s 8.68% trailing-12-month Capex/Sales is 171.1% higher than the industry average of 3.20%.

POWR Ratings Reflect Uncertainty

TSLA has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. TSLA has a C grade for Sentiment, in sync with its mixed analyst estimates.

It has an F grade for Value, consistent with its stretched valuation. Its high profitability justifies its B grade for Quality.

TSLA is ranked #38 out of 56 stocks in the Auto & Vehicle Manufacturers industry. Click here to access TSLA’s Growth, Momentum, and Stability ratings.

Bottom Line

After years of market dominance, TSLA is facing the heat from other prominent automakers developing new electric vehicles. However, TSLA still has a strong market presence, production capabilities, solid profit margins, and a good market understanding. Moreover, its decision to cut prices would make its vehicles much more affordable.

However, given its mixed fundamentals and analyst estimates, it could be wise to wait for a better entry point in the stock.

How Does Tesla, Inc. (TSLA) Stack Up Against Its Peers?

TSLA has an overall POWR Rating of C, equating to a Neutral rating. Check out these stocks from the Auto & Vehicle Manufacturers industry with an A (Strong Buy) or B (Buy) rating: Bayerische Motoren Werke Aktiengesellschaft (BMWYY), Mercedes-Benz Group AG (MBGAF), and Wabash National Corporation (WNC).

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TSLA shares rose $1.70 (+0.61%) in premarket trading Friday. Year-to-date, TSLA has gained 125.65%, versus a 15.67% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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