Now is not the time to buy…or sell: Hold the fire on Tesla stock
Elon Musk is the richest man in the world and the most talked about business leader. Tesla CEO’s statements on any topic spark controversy, dividing opinion between fans and skeptics.
As usual, there are two opposing views on whether he is entitled to his $55bn – or £43bn – pay package from Tesla which was struck down by a US court this week.
The ruling prevents the “model CEO”, as the judge in the case described it, from raising his 22 per cent stake in the £482bn electric car maker to 25 per cent.
There are also two schools of thought about Tesla’s forecast. In the assessment of Musk and his followers, the business falls “between two major waves of growth.” But others stress that the slowdown is more than just a bump in the road.
Tesla was one of the seven tech companies that dominated the stock markets last year. However, over the past month, shares have fallen 29 per cent to $191 (about £150), thanks to a shift in sentiment. The company delivered 1.8 million vehicles in 2023, an increase of 38 percent over a year. But its fourth-quarter sales and profits failed to match analysts’ estimates.
Due to distraction: Over the past month, Tesla shares have fallen 29 percent to $191 (about £150).
As a result, critics say Tesla should be viewed more as a slow-growing, thin-margin automaker than a top player in artificial intelligence and robotics.
Musk’s insistence that these activities are the company’s main purpose — even though most revenue comes from cars nowadays — has helped drive a nearly 15,000 percent increase in the stock price since Tesla went public in 2010.
Does the price drop represent an opportunity to bet on Musk’s astonishing prowess, which may be reinforced by his less attractive “infuriating qualities,” according to his biographer Walter Isaacson?
The businessman’s ability to work hard has also been demonstrated, which may or may not be related to the need to provide for his eleven children.
His other projects include rocket company Space
Cathie Wood – an American fund manager reviled by some and revered by others, somewhat like Musk – has been taking advantage of the falling share price to buy her Ark Innovation fund. She expects Tesla shares to reach $2,000 (about £1,580) within five years. This prediction is based on the arrival of an affordable Tesla model, perhaps in 2026.
The long-awaited self-driving robot car will be built on the architecture of this car.
These launches could provide what US analysts Baird calls a “steady rhythm of upcoming catalysts”, bringing further benefits.
However, investors should also wonder whether Musk’s anger and other qualities can overcome the new climate in the electric vehicle sector. There are questions about the planet-friendly credentials of electric vehicles, and demand is slowing. Ford, General Motors, Renault and Volkswagen are cutting costs and investing.
Low interest rates should encourage new buyers. But Tesla’s luxury models will still be considered expensive, especially since their used prices are disappointing.
The futuristic-looking Cybertruck exemplifies the issues facing the company. The recently released model could cost up to $100,000, or nearly £80,000, although the windows are bulletproof. At the same time, competition is accelerating. The company that is quickly outpacing Tesla is China’s BYD, of which Warren Buffett is a shareholder. In China, a BYD Seagull sells for around $11,000 – or £8,700 – compared to $34,600 – more than £27,000 – for a Tesla Model 3.
Against this backdrop, brokers Bernstein say Tesla shares are worth shorting because they are “detached from the financial realities.” However, most analysts rate Tesla as a “hold” rather than a “buy” or “sell,” which seems like a rational strategy in this uncertain moment.
You might find Musk and his projects very energetic. But you’ve bet your future on this key figure of our time if you have money in Vanguard American index funds, or in Baillie Gifford American and its stablemate Scottish Mortgage where it also owns Space X.
As I said before, I’m sticking with this high-risk confidence because it’s a way to bet on American innovation in which Musk is a major player. The man himself might argue that “possessions kind of weigh you down.”
However, the rest of us need to take some risks to accumulate a savings pot.
(Signs for translation) Daily Mail