Is Tesla Stock a Buy?

Recently, shares of Tesla (TSLA) have been gaining momentum. After the company shared impressive third-quarter results on October 23, the electric vehicle (EV) stock surged by 62% as of November 25. Additionally, the market's increase following the recent elections has also contributed to this rise.

Despite this boost, Tesla shares remain 15% below their peak from about three years ago. For those considering investing, the question arises: is now the right time to buy Tesla stock?

Slowing Growth

Tesla has transformed the automotive industry with its sleek and technologically advanced electric vehicle models, leading it to become one of the most valuable companies in the world, currently valued at $1.1 trillion. Investors have flocked to Tesla in the past due to its rapid growth. However, that growth has recently slowed significantly.

In its third quarter, Tesla reported automotive sales of $20 billion. This figure reflects a 2% increase year-on-year but is 6% lower than the sales in the fourth quarter of 2022. Clearly, growth has become more challenging.

One factor contributing to this slowdown could be rising interest rates, making it more expensive to purchase new vehicles. Given that Tesla's models are in the premium price range, these increased financing costs can be a barrier for potential buyers.

The competition in the EV market is intensifying as well. Tesla no longer holds an undisputed lead; it faces strong competition from international manufacturers, particularly in China. In the U.S., traditional automakers like Ford and General Motors are also launching their own electric vehicles, adding to the competitive pressure.

According to estimates from Wall Street analysts, Tesla's revenue is expected to grow at a compound annual rate of only 12.4% from 2023 to 2026. This rate indicates a significant slowdown compared to its historical performance.

Autonomous Future

Currently, Tesla's primary source of revenue is its electric vehicle sales. However, the company envisions a transformation into a software business that focuses on high-margin, recurring revenue from full self-driving (FSD) technologies, as stated by founder and CEO Elon Musk.

In early October, Tesla introduced its CyberCab robotaxi, aiming for a future where it can operate a global fleet of these vehicles.

However, uncertainties still exist regarding the adoption of autonomous driving technologies. A recent survey by AAA revealed that 66% of U.S. drivers expressed fear of self-driving cars, a rise from 54% in 2021. Even if Tesla overcomes technical, legal, and regulatory challenges, public hesitation about the technology could impede widespread acceptance.

Additionally, Musk's potential influence in the next administration might help create a more favorable regulatory environment for Tesla's self-driving goals.

High Expectations

Over the past five and ten years, Tesla's stock has achieved remarkable gains of 1,430% and 1,960%, respectively. Investors who have held on during the stock's fluctuations have seen returns that far exceed those of the overall market.

Nonetheless, there are concerns that the stock's valuation has become detached from its fundamental realities. Tesla's high price-to-earnings ratio of 93.1 suggests that market optimism is driving expectations regarding the company's future potential. Investors are banking on the belief that Tesla will not only roll out FSD technology but also successfully monetize it globally.

These high expectations mean that there is little room for error. Considering all these factors, it may not be the best time to consider Tesla as a worthwhile investment.

Tesla, Stocks, Investment