Interactive Investor

ii view: Tesla price cut generates demand

26th January 2023 11:39

by Keith Bowman from interactive investor

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Now producing vehicles from four factories and with Twitter in its marketing armoury. We assess prospects. 

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Fourth-quarter results to 31 December

  • Revenue up 37% to $24.3 billion
  • Adjusted Earnings Per Share (EPS) up 40% to $1.19

ii round-up:

Electric car maker Tesla Inc (NASDAQ:TSLA) detailed quarterly earnings which beat Wall Street forecasts, reiterating its prior expectation for 2023 production to hit 1.8 million units, up from 1.37 million in 2021 and offering optimism that it could reach 2 million vehicles. 

Accompanying management comments flagged record order demand year-to-date, with the Nasdaq listed company having cut prices for its cars such as the Model 3 in late 2022.

Tesla shares gained by around 5% in after-hours US trading having more than halved over the last year as fears for growing competition and a recession rose. Rival Volkswagen AG (XETRA:VOW) and General Motors Co (NYSE:GM) are both down by around a third over that time, while the Nasdaq Composite has fallen by just under a fifth. 

Tesla again reiterated its target to grow production as quickly as possible and in alignment with its 50% compound annual growth rate set out in early 2021. Existing production facilities in both California and Shanghai China have recently been added to by plants in both Texas and Berlin, Germany. 

Revenues in the final quarter of 2022 included growth of a third in auto sales to $21.3 billion with sales of its solar and energy storage products accounting for most of the balance. Revenues in relation to its premium driver assistance package or Full Self-Driving (FSD) capability came in at $324 million. 

Broker UBS reiterated its ‘buy’ stance on the shares following the results release. 

ii view:

Headed by Elon Musk, Tesla makes both electric vehicles and energy generation and storage systems. Along with increasing its vehicle deliveries by 40% during 2022 to 1.31 million, energy storage products hit a record 6.5 Gigawatt hours (GWh) during the year while solar products came in at 348 Megawatts (MW), their highest since 2017. Employing around 100,000 people, Tesla has a stock market value of over $455 billion compared to both Mercedes-Benz Group AG (XETRA:MBG) and Ford Motor Co (NYSE:F) both at under $80 billion. 

For investors, increasing all-electric and hybrid vehicle competition from rivals, often at lower prices, cannot be overlooked. An uncertain economic outlook and a potential spike in unemployment may also eventually dampen customers appetite to buy. Elon Musk’s interest in Twitter could now distract, while the valuation still raises questions with Tesla’s estimated price to Net Asset Value (NAV) of over 10 times contrasting with estimates at under two times for many of its rivals. 

On the upside, production is growing, with revenues hitting another record in this latest quarter. Plans to begin production of its cyber pickup truck during 2023 have been underlined, development of its vehicle software is going, while Elon Musk believes that Twitter offers an excellent way to market Tesla products.  

For now, and while some caution remains sensible, a consensus analyst estimated price target of over $185 per share means Tesla will remain many investor's preferred way to play the electric vehicle theme.

Positives: 

  • Increasing production
  • Climate change concerns are growing globally

Negatives:

  • Rising competition from other manufacturers
  • Elevated costs

The average rating of stock market analysts:

Strong hold

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