Tesla (TSLA) is an American electric vehicle company that is committed to powering cars with sustainable energy, as well as providing integrated clean energy solutions for homes. The company designs and commercializes electric cars, battery energy storage systems, solar panels, and other related services.
I am neutral on Tesla because its excessively lofty valuation offsets the attractiveness of its impressive CEO, brand name, and technology. (See Analysts’ Top Stocks on TipRanks)
StrengthsAs an electric-automobile company, Tesla enjoys a leading position in battery and plug-in electric vehicles, capturing 23% of the battery-electric market and 16% of the plug-in market, including plug-in hybrids. As such, the company is one of the biggest global suppliers of battery energy storage systems.
Tesla's first car model, the Roadster, was produced in 2009. This was followed by the Tesla Model S in 2012, and the Tesla Model X in 2015. The company launched the Tesla Model 3 sedan in the year 2017, which was the best-selling electric vehicle worldwide at the time and became the first electric car to sell 1 million units in June 2021. Tesla also released the Tesla Model Y in 2020.
In October 2021, Tesla achieved a market capitalization of $1 trillion, the sixth company to reach the milestone in U.S. history. This is largely a function of the remarkable track record and enormous popularity of Tesla’s CEO, Elon Musk.
Recent ResultsIn the third quarter of Fiscal Year 2021, Tesla reported revenue growth of 57% year-over-year with the figure reaching $13.8 billion. At the same time, the average selling price of its vehicles fell 6% year-over-year due to product updates and a higher mix of lower-priced vehicles.
The company improved its operating income to $2 billion in the third quarter, resulting in a 14.6% operating margin. The year-over-year increase in operating income was attributed to vehicle volume growth and a reduction in costs.
The impact of positive numbers was partially offset by a decline in average selling price, growth in operating expenses, additional costs of the supply chain, lower regulatory credit revenue, and an impairment of $51 million related to Bitcoin and other items.
The company reported third-quarter cash and cash equivalents of $16.1 billion and free cash flow of $1.3 billion. The company’s total debt, with the exception of vehicle and energy product financing, was reduced to $2.1 billion by the end of the third quarter.
Tesla reported it plans to expand its manufacturing capacity in the coming quarter and achieve an average annual growth of 50% in vehicle deliveries.
The third quarter of Fiscal Year 2021 saw many milestones achieved by Tesla, including its highest ever income, gross profit, and net profit.
Valuation MetricsTesla’s stock looks a bit pricey right now given that the forward Enterprise Value-to-EBITDA ratio is a whopping 72x and the price-to-forward normalized earnings ratio is 114x. Worst of all, the price-to-forward free cash flow ratio is a sky-high 198x. (See TSLA stock charts on TipRanks)
Wall Street’s TakeTurning to Wall Street, Tesla has a Hold consensus rating, based on 10 Buys, six Holds, and six Sells assigned in the past three months. Additionally, the average Tesla price target of $835.53 implies 30.1% downside potential.
Summary and ConclusionTesla is an impressive company that has led the world in electric vehicle innovation and is also trailblazing on numerous solar, energy storage, automotive battery, and autonomous vehicle technologies.
Given its large treasure trove of automotive data, impressive CEO, and powerful brand name, Tesla should continue to generate strong results and remain a leader in the global electric vehicle market for many years to come.
That said, the stock price is very elevated after significant market outperformance in recent years. As a result, Wall Street analysts are overall neutral on the stock, and the downside potential from the current share price looks to outweigh the potential upside.
As a result, investors might want to wait for a significant pullback in the share price before purchasing shares.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of Tipranks or its affiliates, and should be considered for informational purposes only. Tipranks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. Tipranks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by Tipranks or its affiliates. Past performance is not indicative of future results, prices or performance.