To The Moon

$Tesla Motors(TSLA)$ have been trading pretty well this week, even though we saw a dip on 13 Dec to low near $228, it has since recovered to trade above $250.

On Friday (15 Dec 2023) we saw Tesla reach a new high of $254.07, before retreating to close at $253.50. I would think next week would be interesting as market should be showing some pullback due to comments by Fed official that Fed does not really mean rate cut happening next year (2024).

But I think it is still early to assess that. But question I have for myself is Tesla still a Buy, I have shared 2 article previously on Tesla price prediction, they are on the positive side, so in this article I would like to examine the factors that either give us confidence to buy Tesla or decide to exit our position of Tesla.

Tesla(TSLA) - A Monster Stock In The Making

If we look back at how Tesla shares has begin its journey throughout these years, there is a reason why I would say Tesla itself is a monster stock.

From mid-2019 to late 2021, we saw Tesla having its stratospheric run, the share price was at its low on 06 Jan, hitting a bear market at $101.84, but the share price jumped back up.

We saw another decline later when Tesla report its Q1 2023 earnings.

On 19 April 2023, Tesla reported a huge decline in its Q1 2023 earnings as revenue missed market estimates. Tesla has executed an an aggressive price-slashing strategy in the first part of 2023, this caused its profit margins to fell below 20%.

Revenue was seen increasing to $23.33 billion, a 24% improvement. Earnings per share came in at 85 cents which is a 20% drop from same period in 2022. Total gross profit came in at $4.5 billion, profit margin was 19.3% down from 23.8% in Q4 2022 and 29.1% in Q1 2022.

If we look at how the share was trading, there was dip in share price after its Q1 earnings (from around $180 to below $155), but it did not take long for Tesla to recover after 26 April 2023.

But it was only near $180 around 19 May 2023.

Tesla (TSLA) Global Price Cutting Strategy

Throughout 2023, we have seen Tesla cut vehicle prices aggressively, this is for Tesla to maintain sales momentum, But this has caused their gross profit margins to drop, excluding regulatory credits, to below 20%.

Before the aggressive price cut, Tesla's auto gross profit margins excluding regulatory credits peaked at 30% in Q4 2021.

In October 2023, Tesla has delivered 435,059 vehicles during Q3, which is very much well below expectations and down 6% as compared to Q2 2023. On top of the delivery miss, Tesla went on to cut the prices of U.S. Model 3 and Model Y, this is a major surprise to the market.

Base Model 3 RWD price was reduced by $1,250 to $38,990 and the Model Y Long Range reduced by $2,000 to $48,490.

Standard range Model S and Model X versions was removed in the U.S. and prices of Model X all-wheel drive version was reduced to below $80,000.

With these strategy, Model X has become eligible for the federal $7,500 tax credit under IRA, confirmed by the Internal Revenue Service on 06 September, but it has not been kind to its share price.

We saw that Tesla price start to have a short decline after 06 Sep, and we have a huge upside after that, before coming down with a larger decline.

So what is the impact on Tesla overall share price? Remember that its was trading above $270 in Mid-Sep, will we see the price going back in early 2024?

China Electric Vehicle (EV) Price War

On 13 August, Tesla has cut prices on two Model Y vehicle trims and began offering a limited-time insurance subsidy for the older Model 3. This was done before releasing the revamped Model 3 in China.

On 16 August, Tesla tried to hit on the EV price war again, this time, nearly doubling discounts on its luxury Model S and Model X vehicles in China.

Tesla has recently been ramping up the EV price war once more in China. It raised prices on Model Y trims in China for five-straight weeks, dating back to the end of the third quarter.

Chinese local media reported that Tesla has started offering a $1,127 insurance subsidy for base-trim Model 3 and Model Y vehicles in inventory through year-end of 2023, this is despite Tesla raising its vehicle prices in China. The entry-level trims account for the vast majority of Tesla's China sales.

Tesla also is offering low-rate loans to spur demand. Top competitor $BYD Co., Ltd.(BYDDF)$ recently stepped up discounts on a range of models, as the China EV and battery giant aims to hit a sales target of 3 million EVs in 2023.

Undeniable headwinds

With all of this said, three undeniable headwinds for the stock make it a hold at its current price rather than a buy.

1. Tesla stock's high valuation of more than 75 times earnings arguably already prices in significant success, leaving very little room for error.

2. High interest rates have made vehicle affordability more difficult and Tesla has had to respond by lowering prices (there's no telling how long interest rates could remain elevated).

3. There's always a risk that investors are underestimating how costly it will be for Tesla to execute on its growth plans.

For these three reasons, Tesla stock should be viewed more like a hold at its current valuation than a buy despite its business momentum and its long runway for further growth.

However, if shares took a 25% to 30% haircut, it might be time to accumulate shares of this disruptive innovator.

Summary

Tesla stock gained around 22% in November ahead of the Tesla Cybertruck delivery event. Tesla shares in December have continued to advance.

Tesla shares sank after the company reported worse-than-expected Q3 earnings and revenue on 18 Oct. However, Tesla is building the right side of a double-bottom base giving it a 278.98 buy point, according to MarketSmith analysis.

Since the beginning of 2023, Tesla stock has surged around 90%, broadly outperforming the broader S&P 500 index. Tesla stock ranks fifth in the 35-stock IBD automaker industry group. The S&P 500 component has an 81 Composite Rating out of a best-possible 99. Tesla stock also has a 79 Relative Strength Rating and an 88 EPS Rating.

The market status is showing a "confirmed uptrend." Tesla stock is about 15% below its official buy point. TSLA is making a gradual advance from its 50-day line. Aggressive investors could use the Nov. 29 high of 252.75 or a trendline just below 250 as early entries.

I personally feel that Tesla is a buy, as interest rates cut or lower interest rates would favour its price war, and with the new autonomous vehicles lined up, this could prove to be a winning strategy for Tesla.

Appreciate if you could share your thoughts in the comment section whether you think Tesla would continue its upside run into 2024.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.