To The Moon

With the arrival of the new year, investors are trying to understand the future of the currently trapped electric vehicle giant Tesla.US (TSLA). During the pandemic, Tesla was regarded as the new favorite of Wall Street and became one of the biggest losers among big technology companies together with Meta and Amazon. Due to a series of anachronistic supply-side emergencies and a continuous bear market, Tesla ended with an annual loss of 65% in 2022. After joining the trillion-yuan club in 2021, its market value has collapsed to less than 400 billion US dollars in the past year. The sharp decline in Tesla's price was devastating for Elon Musk, who lost more than $20 billion in just over a year and gave up his position as the richest man in the world to Bernard Arnault. Tesla's collapse in 2022 represents an unprecedented reversal in the 52-year-old Musk's journey of wealth growth over the years.

However, I don't think Tesla should be completely eliminated, because it is still one of the world's largest electric vehicle manufacturers. In addition, as governments around the world strengthen their commitment to reducing carbon emissions, there will be more and more demand for electric vehicles. This will be an opportunity for Tesla to rise again. Tesla also has other sources of revenue, such as solar power generation and storage systems, which can also help the company make more profits in the future. Therefore, although Tesla experienced some difficulties in 2022, it may still turn around in 2023.

Competitors are catching up with Tesla

Although Tesla has experienced some troubles in the past year, from Musk's chaotic Twitter to China's zero Covid blockade, the long-term threat has now appeared in Tesla's rearview mirror - competition. After gaining the advantage as a pioneer of EV, Tesla's leading position over competitors is weakening because other car manufacturers are catching up quickly. Tesla's competitors include traditional car manufacturers such as Ford, General Motors, Volkswagen and Toyota, as well as pure EV manufacturers such as BYD, Nio, Polestar, Lucid and Rivian.

Tesla's competitors not only grow in the local market, but also abroad. In the United States, Tesla is still a market leader, and EV sales soared by about 85% from 2020 to 2021. However, although the pie is growing rapidly, it is difficult for Tesla to maintain its main share. According to national vehicle registration data, Tesla had about 80% of the U.S. market in 2020, but its share fell to 71% in 2021. Tesla's percentage of all registered EVs fell to about 65% in the first nine months of 2022.

Tesla also faces more competitive pressure in China - the world's largest electric vehicle market. For example, the Chinese electric vehicle brand BYD surpassed Tesla in sales, reaching more than 1 million units in the first three quarters of 2022, including plug-in hybrid vehicles. After BYD, the Chinese brands Nio and Li Auto reached a new level of vehicle production in the last quarter of last year. There are other new brands in emerging markets, such as Vinfast in Vietnam, which recently applied for an initial public offering (IPO) in the United States and plans to expand in Europe next year.

I think Tesla needs to find new ways to maintain its market leadership with the addition of competitors. This may include continuing to expand its product line, improving product quality and reducing production costs. At the same time, Tesla can also consider looking for new sources of revenue, such as charging stations and electric vehicle sharing services.

Stock price reversal

Considering its sharp rise during the pandemic, Tesla's stock price may have been waiting to turn around for a long time. At the end of 2020, Tesla's price-earnings ratio (P/E) ratio was alarmingly high, as high as 966, which means that the price of Tesla's stock is equivalent to 966 times its earnings per share. In contrast, the average P/E ratio of S&P 500 stocks ranged from 25X to 40X in the year.

I think the previous market investment boom in Tesla was driven by speculation about its future growth rather than its basic profitability, which created all kinds of strange statistics. For example, when Tesla first exceeded $1 trillion at the end of 2021, its market value exceeded the sum of the next top ten car manufacturers. However, its total car sales are less than 2% of the other ten companies.

In this sense, Tesla is a typical technology growth stock, not a car company. Unlike its more mature rival car manufacturers, Tesla does not pay dividends, but follows Silicon Valley's conventions and reinvests its profits to promote further expansion. Therefore, Tesla's bull market is obviously different from Warren Buffett's value investment strategy, who advocates buying undervalued companies with fixed dividend returns.

Tesla's outlook

The outlook for 2023 is still unclear. Although the economic recession environment may further drag down growth stocks like Tesla, there may be hope. Despite the increasingly fierce competition, most electric vehicle brands have not yet entered the high-end market - this is the real field of Tesla. For example, although BYD surpassed Tesla in total sales last year, Tesla is still far ahead of profit margins. BYD's profit margin is only about $1,200 per car, while Tesla's profit margin is more than eight times its - nearly $10,000 per unit.

However, some people think that there is still a bull market. Morgan Stanley analysts expect Tesla to further expand its leading advantages over other electric vehicle brands, and point out that the company will benefit greatly from the upcoming deflationary bill (IRA). Others, such as Deutsche Bank, do not think the road will become smoother in the next few quarters, but insist that the company is in a good position to cope with the current macroeconomic recession and has various cost leverage to protect its high profit margins.

I think whether Tesla's stock price can rise and reach its previous historical high may depend on whether it can turn its vehicle into an EV iPhone. If it, like Apple, can continue to convince consumers that its car is unique and maintain its dominance in the high-end market, it may bring impressive growth to investors in the long term. However, if it succumbs to the increasingly crowded market competitive pressure and becomes another EV brand, given the company's high risks and the uncertainty of the economic situation in 2023, Tesla's price trend will receive close attention from investors in the coming year.

@TigerStars @Tiger_chat @Daily_Discussion @MillionaireTiger