Is Tesla high risk?
Is Tesla high risk?
Despite fluctuations in the stock price over the years, Tesla (NASDAQ: TSLA) has continued to capture the attention of investors and analysts as a leading player in the stock market as an electric vehicle (EV) manufacturer.
Tesla’s future stock price remains the subject of much speculation and debate while predicting the stock price of a company involves many variables and uncertainties. OpenAI’s text-based artificial intelligence (AI) platform ChatGPT has already gained worldwide recognition and popularity over its usability in multiple areas. Taking this into account, Finbold asked the AI chatbot to see if it could provide any possible insight into Tesla’s stock price range by 2030 based on its past performance, aggregated online information, and other factors, such as its charismatic CEO, Elon Musk. After admitting it ‘cannot endorse any specific trading range or price target for Tesla,’ ChatGPT stated the popularity of both the company and Musk would play an important role in its future performance.
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“While the strength of the Tesla community and the leadership of CEO Elon Musk are certainly important factors to consider when evaluating the future prospects of the company, it is difficult to make specific predictions about the future stock price of Tesla.”
ChatGPT on Musk
One factor that could impact Tesla’s future stock price is the leadership of its CEO. Musk is known for his charismatic and often controversial leadership style, and he has been a driving force behind many of Tesla’s key innovations and initiatives. However, the CEO’s unpredictable behavior has also led to some volatility in Tesla’s stock price over the years. If Musk is able to continue leading Tesla effectively and driving the company’s success, this could help support the future growth of the company’s stock price. There are also several potential risks and challenges that could impact Tesla’s future stock price. Notably, the AI tool notes there are things like the state of the global economy, changes in regulations, the level of competition, and technical breakthroughs which could have an impact between now and the end of the decade.
“Many factors could impact the future value of Tesla’s stock, including global economic conditions, regulatory changes, competition, and technological advancements, among others. Moreover, predicting stock prices involves a high level of risk and uncertainty, and there is always the possibility that unexpected events could impact a company’s performance and stock price.”
For instance, due to supply chain interruptions affecting the automotive sector, Tesla lost a significant amount of its share price in 2022, despite delivering a record 1.3 million vehicles, forcing it to lower the prices of its Model 3 sedan and Model Y SUV in China and the U.S.
One of the main risks the company faces is the increased competition in the electric vehicle market. As more automakers enter the market and introduce their own EVs and develop their brand, Tesla could face increased pressure to maintain its market share and differentiate its products from those of its competitors. Back in January, when asked by Finbold to share his end-of-2023 price for Tesla, product manager at Jika.io Ofir Kruvi said:
“$400 is a price tag that is more relevant for 2025-2026 than 2023. While things are looking positive for the company overall, it’s unlikely that 2023 is the year that takes Tesla to new heights.”
However, the projections made by CoinPriceForecast, the finance prediction platform that uses machine self-learning technology, indicate a significant increase for TSLA stock by 2030, as per data retrieved by Finbold on February 17. The forecasted price prediction for 2030 is $1,119, a 454% increase from the stock price at the time of publication. With that being said, forecasting the future stock price of Tesla is a difficult and uncertain endeavor; however, based on the information that is currently available, as well as an analysis of the company’s performance and future prospects, it is possible that Tesla’s stock price could continue to grow over the course of the next decade. Buy stocks now with Interactive Brokers – the most advanced investment platform Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
Is Tesla Stock a Buy After Earnings?
With its 4-star rating, we believe Tesla stock is undervalued when compared with our fair value estimate.
Our fair value estimate for Tesla stock is $215 per share. In the near term, we forecast that Tesla increases its annual total vehicle delivery volume to a little over 1.8 million in 2023, or roughly 37% versus 2022. However, because of price cuts far exceeding cost savings, we forecast automotive gross margin contraction in 2023 to 22% from the 29% achieved in 2022. Longer term, we assume Tesla delivers around 5 million vehicles per year in 2030. This includes fleet sales, an expanding opportunity for Tesla. We think Tesla will be successful in continuing to reduce its manufacturing costs on a per vehicle basis. Additionally, we assume Tesla’s overhead expenses continue to decline as a percentage of sales as the company benefits from operating leverage as deliveries increase.
What We Thought of Tesla’s Q1 Earnings
- Tesla’s gross margin and operating margin declined further than what the market was expecting as price cuts weighed heavily on profits. The stock fell on the earnings report as a result.
- We view the profit margin decline as temporary. While Tesla will likely see lower margins over the next couple of years, eventually the cost reductions that Tesla laid out at its investor day in March will reduce the unit production costs, boosting long-term profit margins.
- Market sentiment may weigh on Tesla in the near term, but we still see strong profit growth over the long term, which should drive shares closer to our $215 per share fair value estimate.
Economic Moat Rating
We award Tesla a narrow moat rating. Tesla’s moat stems from two of our five moat sources: intangible assets and cost advantage.
- Intangible Assets: Tesla’s brand cachet is not likely to be impaired anytime soon as other automakers move into the battery electric vehicle space because we expect the company to keep innovating to stay ahead of startup and established competitors. Tesla has a more high-tech vehicle with the ability to do drivetrain updates and other updates via Wi-Fi or a cellular connection, and customers do not have to visit a store for many service needs. Tesla’s proprietary technology contributes to its intangible asset-driven competitive advantage.
- Cost Advantage: We think Tesla benefits from a cost advantage in electric vehicle production thanks to its manufacturing scale. Tesla’s total vehicle volume has grown from just over 100,000 in 2017 to over 1.3 million deliveries in 2022. We think Tesla’s combination of intangible assets and cost advantage will persist in the future and allow the firm to generate excess returns on capital.
Risk and Uncertainty
We assign Tesla an Uncertainty Rating of Very High as we see a wide range of potential outcomes for the company. The automotive market is highly cyclical and subject to sharp demand declines based on economic conditions. As new lower-priced EVs begin selling, Tesla may be forced to continue to cut prices, reducing the firm’s industry-leading profits. Tesla faces environmental, social, and governance risks. As an automaker, Tesla is subject to potential product defects that could result in recalls, including its autonomous driving software. Another risk involves employee retention. If Tesla is unable to retain key employees, such as CEO Elon Musk, its favorable brand image could decline. Additional ESG risks include potential patent litigation as the company relies on new technology to improve its EVs and energy storage systems.
TSLA Bulls Say
- Tesla has the potential to disrupt the automotive and power generation industries with its technology for EVs, autonomous vehicles, batteries, and solar generation systems.
- Tesla will see higher profit margins as it reduces unit production costs over the next several years.
- Through the combination of its industry-leading technology and unique supercharger network, Tesla offers the best function of any EV on the market, which should result in its maintaining its market leader status as EV adoption increases.
TSLA Bears Say
- Traditional automakers and new entrants are investing heavily in EV development, which will result in Tesla seeing a deceleration in sales growth and being forced to cut prices due to increased competition, eroding profit margins.
- Tesla’s reliance on batteries made in China for its lower-priced Model 3 vehicles will hurt sales as these autos will not qualify for U.S. subsidies.
- Solar panel and battery prices will decline faster than Tesla can reduce costs, resulting in little to no profits for the energy generation and storage business.
This article was compiled by Maggie Guidici.
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Seth Goldstein does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.