The electric vehicle maker's stock has been pounded in recent months. Is it time to buy?
Like many other stocks in 2022, Tesla (TSLA 0.54%) was ravaged by the bear market. Unlike many of these same stocks, the sell-off has accelerated in recent months. While the stock has rebounded slightly from its lows, it's still down 46% since October and down 70% since late 2021.
While there are plenty of reasons to conclude the decline is justified, Tesla stock is starting to look tempting at these levels. Let's look at three challenges that have pushed the stock lower to see if Tesla's a buy.
Image source: Tesla.
1. Tesla had weak deliveries in 2022
Just last week, Tesla announced its production and delivery results for the fourth quarter and the numbers fell short of expectations.
The company said it produced 439,701 vehicles in Q4 and delivered 405,278. For the full year, deliveries of 1.31 million climbed 40%, while production grew 47% to 1.37 million. Both metrics fell short of Tesla's long-term goal of 50% growth. For context, Wall Street had been expecting 415,000 electric vehicles (EVs) to be delivered during the fourth quarter and 1.8 million for the year.
Perhaps most troubling to investors was that weak performance came even as the company dangled steep discounts for potential buyers to close out 2022, offering $7,500 for those who took delivery of a Model 3 or Model Y in the final 10 days of the year. Tesla also lowered the price of its most popular models for customers in China.
2. The Twitter factor
It's no coincidence that Tesla stock has fallen 46% since late October, which is about the time that CEO Elon Musk appointed himself CEO of social media company Twitter -- just shortly after taking the company private. Musk was already spread pretty thin with his various duties at the other companies he runs -- Tesla, SpaceX, Neuralink, and The Boring Company.
Given the struggling economy and the challenges Tesla already faces, the enigmatic leader likely has his hands full. Some investors feel that Musk is simply taking on too much and are reticent to continue holding Tesla stock while its leader focuses so much on his latest venture. This growing lack of investor confidence will likely continue to weigh on the shares -- at least until Musk delegates the job of running Twitter.
3. The economy is weighing on Tesla
If there has been one factor that's been front and center over the past year, it's been macroeconomic headwinds -- all of which will continue to drag on car sales.
Inflation skyrocketed last year, hitting its highest level in 40 years. The Federal Reserve responded by increasing the prime lending rates six times in 2022, in a bid to slow the economy and indirectly cool the rampant price increases.
As a result, everything bought on credit is more expensive, as interest rates have hit their highest level in 15 years. This pushed credit card rates to record highs and auto loan rates to an 11-year high. Furthermore, the Fed is expected to continue raising rates, which are expected to peak at between 5% and 5.5% in 2023.
The combination of higher prices and rising interest rates have already put a strain on consumer budgets, which will put a luxury brand like Tesla out of reach for most car buyers. In fact, data suggests that even wealthier consumers -- part of Tesla's biggest customer pool -- are cutting back on spending.
Tesla stock: A compelling opportunity?
While the reasons for its decline are certainly understandable, we arrive at the quintessential investing question: Is Tesla stock a buy? The answer, as with many things, depends on who you are as an investor.
Each of the issues outlined above is short-term in nature -- as the old saying goes, "this too shall pass." That's not to say the stock won't fall further, but calling a bottom is notoriously difficult. Investors who were excited about Tesla when the stock was priced above $400 should be thrilled now that shares are selling for a 70% discount.
As for Tesla's valuation, with a price-to-earnings ratio of 38, Tesla is cheaper than it's ever been. However, it's still selling at a premium to the S&P 500, which is trading at just over 20 times earnings. Those who fill their portfolio with value stocks are unlikely to be swayed by Tesla's current sticker price.
The global electric vehicle market clocked in at $165 billion in 2021 and is expected to grow to $434 billion by 2028. Tesla generated $50.2 billion in auto sales through the first three quarters of 2022 and is expected to end the year with revenue of roughly $83 billion, according to analysts' consensus estimates, which helps illustrate the magnitude of its opportunity that remains.
So for those with the stomach for a little volatility, Tesla stock offers significant upside potential.
Danny Vena has positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
