Tesla Stock Down 65% Over Past Year; Is It a Value Stock Now?

Tesla Stock Down 68% Over Past Year; Is It a Value Stock Now?

Why TSLA Stock Remans Tops Among EV Stocks

During the technology stock sell-off of 2022, one of the hardest-hit sectors was electric vehicles (EVs). As of this writing, the Global X Autonomous and Electric Vehicles ETF (NASDAQ:DRIV) has declined by 28% year-over-year.

Helping lead that decline was EV heavyweight Tesla Inc (NASDAQ:TSLA). Tesla stock has underperformed the Global X Autonomous and Electric Vehicles ETF. TSLA stock is down by 65% year-over-year.

While investors are currently in the negative camp regarding EV stocks, including Tesla Inc, my view is that there could be aggressive opportunities on the horizon.

Much of Tesla stock’s price deterioration has been news-driven. Investors have been concerned that CEO Elon Musk has been too focused on running Twitter, Inc. instead of bringing Tesla Inc back on track.

The rise of competition from EV companies in China and other countries is something that Tesla needs to deal with. While the company retains the leading EV market share in China, that share has been declining.

Tesla Inc recently announced that, in the face of intense competition in the key Chinese market, it would reduce the price of its “Model 3” and “Model Y” cars in that country. This was the company’s second price cut in China in three months. (Source: “Tesla Stock Sinks, Then Rallies, After Company Cuts Prices in China,” Yahoo! Finance, January 6, 2023.)

While the vehicle price cuts will reduce Tesla’s revenues and margins, my view is that TSLA stock is still the top among EV stocks for now.

Chart courtesy of StockCharts.com

Tesla Inc Has Strong Fundamentals & Financial Growth

As far as production and sales go, Tesla Inc has been ramping up its capacity and is now a highly profitable company. The expected margin pressures from the company’s price reductions will cut into this, but Tesla should be able to adjust longer-term.

In the fourth quarter of 2022, Tesla produced 439,000 vehicles and delivered 405,000. (Source: “Tesla Vehicle Production & Deliveries and Date for Financial Results & Webcast for Fourth Quarter 2022,” Tesla Inc, January 2, 2023.)

That’s up from 365,923 and 343,830, respectively, in the third quarter of 2022. (Source: “Tesla Vehicle Production & Deliveries and Date for Financial Results & Webcast for Third Quarter 2022,” Tesla Inc, October 2, 2022.)

For full-year 2022, the company recorded production growth of 47% year-over-year and delivery growth of 40% year-over-year.

 Fiscal PeriodProduction (Number of Vehicles)Deliveries (Number of Vehicles)
2022 Fourth Quarter439,701405,278
2022 Full Year 1.4 Million1.3 Million

(Source: Tesla Inc, January 2, 2023, op. cit.)

Tesla Inc’s business growth has translated to improved financial results and higher expectations.

In 2021, the company’s revenues came in at $53.8 billion. Analysts estimate that its revenues rose by 53.3% to $82.4 billion in 2022 and that they will climb by 33.8% to $110.3 billion in 2023. (Source: “Tesla, Inc. (TSLA),” Yahoo! Finance, last accessed January 13, 2023.)

With a market cap of $385.8 billion, this implies that Tesla trades at a reasonable 3.5 times the company’s consensus 2023 revenue estimate. This is much lower than the previous year’s multiple, due to the drop in Tesla stock’s price.

On the bottom line, Tesla Inc is now highly profitable after suffering losses for years as the company built up its capacity.

The company earned an adjusted $2.26 per diluted share in 2021, and analysts estimate that this rose to $4.06 in 2022. For 2023, analysts expect Tesla’s diluted earnings per share (EPS) to grow to $4.95, although—given the company’s expected margin pressures—this target might not be met.

But let’s assume that Tesla Inc delivers the consensus earnings estimate of $4.95 per diluted share. Under this scenario, TSLA stock currently trades at an attractive 24.7 times its consensus 2023 diluted EPS estimate.

For a growth stock, Tesla’s valuation is compelling; its current price/earnings to growth (PEG) ratio of 1.1 supports this.

Analyst Take

Tesla Inc has some macroeconomic issues to deal with, especially with the rising competition in the EV market and its impact on pricing and margins.

For now, Tesla stock remains a top EV play, so investors might want to consider accumulating shares on further price deterioration. TSLA stock’s valuation after its recent sell-off makes it a compelling risk/reward opportunity for long-term investors.