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The naysayers have been having a field day with Tesla (TSLA -0.17%), citing all sorts of negative trends that could imperil the electric-vehicle (EV) maker. But the naysayers have been wrong before.
That’s not to say the company doesn’t face challenges; it does. But some of the challenges are the same facing all automakers, while others are unique to the company.
So, what’s wrong? For starters, while Tesla reported record sales in November (more on that in a minute), it was far from the top-selling EV brand in China, the world’s largest auto market. That honor fell to Chinese automaker BYD (BYDDY 0.72%), backed by Warren Buffett’s Berkshire Hathaway. It more than doubled Tesla’s sales, according to China Merchants Bank International.
Online reports say that Tesla is planning to cut production of its Model Y at the Shanghai plant by 20%, but a company representative termed the report “false news.”
Other international automakers are struggling as well, as domestic brands in China are proving to be strong competitors. Among the casualties: Stellantis (STLA 1.85%), whose Jeep brand is the oldest foreign automaker venture in China, with operations that date to 1984. With sales in a free fall, Stellantis has elected to end its joint venture with a Chinese partner, and that particular joint venture has filed for bankruptcy in China.
Also facing slumping sales in China is Volkswagen, down 14% to 3.3 million units. General Motors (GM 1.99%) also reported lower sales in November, down 9.5%, its first decrease in six months. So Tesla’s declining fortunes in China are in line with other international manufacturers.
Then there’s the specter of inflation and rising interest rates, which also affect all automakers. This might slow the sales of Tesla’s most-popular (and least expensive) models, but it has less of an effect given most of Tesla’s products are in the luxury segment, which is less affected by economic forces.
Lastly, there’s CEO Elon Musk’s takeover of Twitter, and its effect on Tesla sales, as well as Musk’s turning his attention to Twitter. The dustup over Twitter is having an effect on the EV maker, with the brand falling to sixth from fifth among the most-shopped luxury brands consumers consider when shopping for a new vehicle.
Both are legitimate concerns, but this storm shall pass, as will inflation and interest rates. It just takes time.
Despite this maelstrom, Tesla’s fundamentals remain solid, with the company reporting its highest monthly sales since its Shanghai factory opened in late 2020. Its sales total of 100,291 EVs in November was a 40% increase from October and 89.7% higher year over year.And the company has the lowest cost EV battery packs, according to a new report from Cairn Energy Research Advisors, paying an average of $142 per kilowatt hour, vs. $169 per kWh at GM. However, both are less than the industry average of $186 per kWh.And
Then, there are the company’s new products. Its Semi truck is entering production, with initial models going to PepsiCo, with orders from Walmart, UPS, and Sysco also on tap. There’s also a redesign coming for the Model 3, according to a Reuters report, following the design update of the Model S last year.
And it remains the EV sales leader in the United States, holding a 65% market share, down from 71% last year.
That is expected to decline as cheaper EVs come to market, a segment in which Tesla doesn’t compete. But Musk has said the company is working on cheaper models, although nothing has been officially announced.
All of this has contributed to the stock falling to its cheapest point in years, with shares trading near its 52-week low. Add in the fact that Tesla says it is likely to do a “meaningful buyback” next year, according to management, and it makes the stock a tempting buy given its current valuation — or, given the coming buyback, one worth holding on to for now. This has led some well-known hedge fund names to increase their holdings, including Ken Griffin at Citadel Investment Group, Israel Englander at Millennium Management and Phill Gross And Robert Atchinson AT Adage Capital Management to increase their Tesla holdings. It might be time for you as well.
Given the much tougher futures faced by its upstart EV rivals, Tesla looks like a solid bet. Certainly, it’s not the time to sell as it remains a solid buy among EV stocks.
Larry Printz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends BYD, Berkshire Hathaway, Tesla, and Walmart. The Motley Fool recommends United Parcel Service and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway, long January 2023 $50 calls on Sysco, short January 2023 $200 puts on Berkshire Hathaway, short January 2023 $265 calls on Berkshire Hathaway, and short January 2023 $85 calls on Sysco. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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