Tesla: the bullish and bearish cases right now

You’re here (TSLA -3.08%) has taken investors on a roller coaster ride since the start of 2022 – crashing, recovering, then crashing again. It is now down 30% since the start of the year, which is a steep drop from the S&P500That’s a 14% drop. As a result, Tesla bulls are promoting it even more enthusiastically as a golden buying opportunity. Tesla bears, on the other hand, were quick to warn investors that shares of Elon Musk’s electric vehicle (EV) company could drop significantly.

After surpassing a market capitalization of $1 trillion at the end of 2021, the company’s market value now sits at around $770 billion. Does the polarizing electric vehicle leader have what it takes to reclaim its $1 trillion status and continue growing into the future?

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What the bulls say

The bulls are absolutely thrilled with Tesla’s operational performance so far. As it should be – Tesla released a record first quarter report despite China’s COVID-related factory shutdowns and ongoing supply chain issues. Its revenue rose 81% year over year to $18.8 billion, and its adjusted earnings jumped 246% to $3.22 per share. Adjusted EBITDA margin increased 906 basis points to 26.8%, and the company generated $2.2 billion in free cash flow, a stunning 660% increase over the period. the previous year.

Total vehicle production and deliveries increased 69% and 68% year-over-year to 305,407 and 310,048, respectively, and management expects 50% average annualized growth in deliveries over the multi-year. Tesla continues to expand its business at a rapid pace and, fortunately for the electric vehicle juggernaut, the company has ample resources to fund its ambitious product roadmap. With $18.0 billion in cash, cash equivalents and short-term marketable securities on its balance sheet, and just $100 million in debt excluding vehicle and energy financing, Tesla’s finances are solid to say the least. Combined with the fact that it has become a very profitable business, the bulls have every right to smile from ear to ear.

What bears say

Bears are quick to point out the outrageously high valuation of the EV company. Even after losing more than 30% of its value this year, the stock still trades at 60 times forward earnings, a steep premium to other automakers. Traditional automakers Ford and General Motors trade at forward price/earnings multiples of 7.0 and 5.3, respectively. Tesla’s high valuation is enough to rule out value-oriented investors for now.

The EV leader is also facing a variety of headwinds right now. A high inflation environment is never ideal for consumer discretionary stocks, and supply chain constraints are likely to persist for the foreseeable future. Similarly, Musk didn’t help Tesla’s cause with his distracting potential takeover of Twitter and his recent comments about the company’s downsizing of employees, suggesting that a recession in the near future is likely. Between macro conditions and its CEO’s penchant for generating polarizing headlines, there’s certainly a good chance Tesla’s stock will come under more downward pressure.

Should investors buy Tesla now?

Seen through a long-term investment lens, Tesla is a valid buy today. Compared to traditional automakers, its stock is undeniably expensive. However, the electric vehicle industry is growing at a much faster rate, and Tesla’s growth rates are significantly better than those of traditional automakers. In addition, the stock price is more reasonable than that of other pure electric vehicle companies. The new comers Lucid Group and Rivian Automotive are trading at price/forward sales multiples of 23.2 and 13.8, respectively, versus 8.6 for Tesla currently.

Overall, I view Tesla’s pullback as a good buying opportunity. The company’s EV business is seeing robust growth, and it still has considerable potential with its battery storage segment and fully self-driving car projects. Assessing risk is important, but I feel comfortable recommending Tesla stock today.

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