Is Tesla Stock a Buy?

Shares of Tesla (NASDAQ: TSLA) have been gaining significant momentum recently. Since the company reported positive third-quarter results on October 23, the stock of the electric vehicle (EV) maker has jumped by 62% (as of November 25). Additionally, the post-election market surge has contributed to this increase.

Despite this rise, Tesla's shares still trade approximately 15% below their peak price reached nearly three years ago. If you're considering an investment, is now the right time to buy Tesla stock?

Slowing Growth

Tesla has rapidly transformed the automotive landscape with its innovative and sophisticated EV models, growing into one of the most valuable companies in the world, boasting a market capitalization of $1.1 trillion. For many years, investors were captivated by its swift expansion. However, growth has notably slowed.

In the third quarter, Tesla reported automotive sales amounting to $20 billion—a figure that reflects a modest 2% year-over-year increase but is already a 6% drop compared to the fourth quarter of 2022. This slowdown highlights the challenge of sustaining growth.

One factor affecting sales is the rising interest rates, which diminish the affordability of purchasing new vehicles. Since Tesla's models are positioned at the higher end of the market, increased financing costs present an additional challenge for potential buyers.

Fierce competition is also complicating Tesla's position. The company is no longer the unequivocal leader in the EV market. It faces strong challenges from international competitors, particularly in China, as well as from established American auto manufacturers like Ford and General Motors, who are entering the electric vehicle space with their own product lines.

According to estimates from Wall Street analysts, Tesla's revenue is anticipated to grow at a compound annual growth rate of 12.4% from 2023 to 2026. This forecast signifies a notable decline from the rapid growth rates the company has experienced previously.

Autonomous Future

Currently, Tesla derives the majority of its revenue from selling EVs, but its future could take a different direction. The company may eventually pivot to operating more like a software-centric business, profiting from high-margin recurring revenues generated by Full Self-Driving (FSD) technologies, as envisioned by CEO Elon Musk.

In early October, Tesla introduced its CyberCab robotaxi concept, with ambitions of operating a fleet worldwide.

Yet, there remain substantial uncertainties surrounding autonomous vehicle technologies, particularly regarding widespread public acceptance. A survey by AAA conducted in early 2024 revealed that 66% of U.S. drivers expressed concern about self-driving vehicles, a sharp increase from 54% in 2021. This hesitance, coupled with technical, legal, and regulatory hurdles, may impede the broad adoption of FSD technologies.

However, Musk's position may enable him to have considerable influence within the possible Trump administration, which could lead to more favorable regulations for Tesla's self-driving initiatives.

High Expectations

Over the past five and ten years, Tesla's stock has skyrocketed by 1,430% and 1,960%, respectively. Investors who have held onto their shares through various market conditions have seen extraordinary returns that surpass the overall market performance.

Nonetheless, the company's current valuation appears detached from the realities of its fundamental business performance. The stock's high price-to-earnings ratio of 93.1 reflects an optimistic market outlook regarding Tesla's future. Investors are banking on the company's ability to not only implement FSD technology but also successfully monetize it on a global scale.

This scenario leads to exceptionally high expectations being priced into Tesla's stock, leaving little room for error for those contemplating an investment. When weighing these factors, it does not appear that Tesla is a stock worth buying at this moment.

The author has no positions in any of the stocks mentioned.

Tesla, Stock, Investment