Tesla Inc. (TSLA) is a leading innovator in autonomous driving and electric vehicle (EV) technology, and its stock has seen a meteoric rise over the past few years.
A rise so meteoric that it led to the creation of many “Teslanaires” — millionaires whose only (or primary) investment was Tesla stock. Source: TradingView, Graph of TSLA from October 2019 to April 2022 — +2131%.
However, following Elon Musk’s acquisition of Twitter and the drama that ensued post-purchase, Tesla shares have been on a crash-course for Earth.
Source: TradingView, Graph of Tesla from April 2022 to present — -67.85%.
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The Tesla Bear Case: Gordon Johnson, GLJ Research
Despite its recent decline, some analysts are questioning whether the stock is still overpriced, and don’t believe it’s time to try catching the falling knife.
First, Gordon Johnson — who has been called Tesla’s biggest bear — believes Tesla’s stock value has been driven by investor enthusiasm and speculation. The company’s market capitalisation has grown from $35 billion in 2016 to $900 billion in 2021, and its share price has increased over 900% in the same period. This growth has largely been driven by investors’ expectations of future growth, rather than a reflection of Tesla’s current financial performance.
Second, Tesla’s stock is more expensive than other comparable companies.
Despite having a significantly smaller EBITDA, Tesla continues to have an enterprise value roughly equal to the other top 6 automakers in the world — even in 2023, post-decline. Source: Albert Bridge Capital.
Tesla’s price-to-earnings (P/E) ratio is significantly higher than those of other automotive companies, indicating that investors are willing to pay more for Tesla’s stock than they are for other companies in the same industry. Bearish analysts like Gordon Johnson believe that a shift in pop culture could lead to Tesla losing a big chunk of market share.
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GLJ Research has also pointed out Tesla stock’s unique business model. Tesla is pioneering the development of autonomous vehicles and EV technology, however it’s also dipping its hands into a wide swath of other businesses and products — like AI robots. GLJ Research believes that these products are generally “eye candy” for investors, and won’t have a material impact on Tesla’s revenue for many years to come.
Finally, analyst Gordon Johnson believes Tesla’s stock is also overpriced due to the lack of near-term catalysts for growth. While Tesla is continuing to innovate and expand, Gordon has pointed out that the only product to speculated to launch this year — the Cybertruck — is also grossly priced into the stock, and it’s late launch may even turn into a dampening in demand.
Overall, the Tesla bear case is that the stock is still overpriced due to significant investor speculation, its high P/E ratio, its “unique” business model, and the lack of near-term catalysts for growth. While Tesla’s stock may continue to appreciate in the long-term, Gordon Johnson and the analysts at GLJ research believe investors should exercise caution when considering investing in the company’s stock in the near-term.
The Tesla Bull Case: Gary Black, The Future Fund
One man who disagrees with Gordon Johnson’s take that there are no near-term catalysts coming for Tesla is Gary Black.
For every bear, there is a bull — and one of Tesla’s most well-known, biggest bulls, is Future Fund CIO & CEO, Gary Black. Tesla is Gary Black’s biggest position in his fund, and while he doesn’t love the hype that Elon Musk’s Twitter acquisition has generated, he considers Tesla to still be an excellent investment — especially at these levels.
Key to Gary Black’s case: Tesla has a strong presence in the electric vehicle (EV) market. It is the leader in the global EV market and has a large market share. It has also been able to expand its presence in markets such as China, where it is now the top-selling EV brand. This has helped to boost its share price and is likely to continue to do so in the coming years, as the global market share for EV’s continues to grow alongside worldwide EV adoption. According to Statista, revenue in the EV market is projected to reach $457.6B in 2023.
Second, Tesla has made significant investments in technology and engineering, which has enabled it to develop more advanced vehicles and batteries than its competitors. This has helped to improve the performance and range of its vehicles, making them more attractive to customers. Black believe’s this should help to drive demand for Tesla’s vehicles, which in turn should support the stock price.
Third, Tesla has also been successful in developing its own battery technology. This has enabled it to reduce costs and improve the efficiency of its vehicles. This should help to make Tesla vehicles more affordable and should also help to increase demand for its vehicles. And speaking of affordability, Black recently pointed out in an interview with CNBC’s Mike Santoli that Tesla’s next mission is to produce a first-of-its-kind low-cost EV, priced around the $25K range. Black believes this would likely broaden market share to a new variety of customers who were previously priced out of the EV market.
Finally, Tesla has seen a surge in demand for its vehicles due to the increasing demand for EVs and the increasing awareness of their environmental benefits. This should continue to drive demand for Tesla’s vehicles in the coming years, which Black believes should help drive the stock price higher.
In conclusion, Gary Black believes Tesla is the most well-positioned car company in the world to benefit from increasing demand for EVs and its investments in technology and engineering. Black believes these factors among others should help to bolster the stock price, making it a good investment in 2023, against an extremely pessimistic stock market backdrop.
The Bottom Line: Are You a Bear, or a Bull?
The real answer to the question of “will Tesla stock recover in 2023” may come down to events outside of Tesla & Elon Musk’s control. For instance, if the majority of economists and talking heads are right, the United States may be heading for a recession. Historically, car companies have trouble selling new cars (especially expensive ones) during recessionary periods.
However, as many have pointed out, if the United States does encounter a recession in 2023, it’ll be history’s most highly forecast, highly predicted recession. One that the stock market has been very, very aware of — and that stock prices have largely discounted. Atop that, many analysts believe that it could be a mild, “soft” recession — and that it’s possible stocks have been discounted “too much” leading up to the event. That a recession could be a “sell the hype, buy the news” type fear event.
Regardless of which outcome you believe, it’s important to stay weary of the macro backdrop when deciding whether or not to make an investment in a highly volatile, highly macro-sensitive stock like Tesla’s. But hopefully these bear and bull cases have helped you make your decision.
