Tesla Shares Just Popped 7%. Is It Time to Buy Now?

July 4, 2023

Tesla Inc. (NASDAQ: TSLA), the world’s leading electric vehicle (EV) manufacturer, set a new sales records in the second quarter as it delivered 466,140 cars globally.

This surpassed analysts’ expectations of 448,350 deliveries. It also resulted in its share price rising by nearly 7%.

Tesla, led by CEO Elon Musk, has focused on increasing sales volumes, even if it compromises profitability.

This approach puts more pressure on traditional automakers struggling to compete with their EV offerings.

Strong deliveries reduce the risk of further price cuts

Tesla’s total deliveries, around 466,000 vehicles, exceeded estimates by 4%.

The year-to-date deliveries were up by 58% compared to the same period in 2022.

With this rate, Tesla seems likely to meet its target of approximately 1.8 million deliveries this year.

While Tesla’s strategy of price reductions has increased sales, its impact on profits remains uncertain.

In the first half of 2023, the company had to balance growth against margins.

The full impact of Tesla’s strategies on its profits won’t be clear until 19 July, when it reports its latest earnings.

The company had previously reported reduced gross margins due to a price war, causing some concern among investors.

However, with the strong sales recorded, this should reduce the risk of further price cuts in the near term.

Tesla’s share price has soared by more than 150% in 2023 so far

Tesla’s share price jumped by more than 150% in 2023 so far, but it is still about 30% off its all-time high.

In the last three years, Tesla stock has achieved new highs only to witness a minimum 25% drop three times, including a 75% plummet from which it is still recovering from.

The question is whether the stock is heading towards a new pinnacle or if investors should maintain caution, given that the share price has doubled in just a few months.

Production capabilities building

Tesla has communicated to its investors an expected production of 1.8 million cars in 2023.

However, it has already manufactured over 920,000 vehicles in the first half of the year, putting it on track to surpass this target.

Furthermore, the company plans to significantly boost its production by aiming to operate 12 Gigafactories worldwide by 2030, a substantial increase from the current four.

This strategy could potentially enable Tesla to produce up to 20 million cars annually.

Future growth prospects are exciting

The strong sales during the quarter led by aggressive pricing cut strategies reflects Tesla’s strong brand name.

While there is concern about the impact on margin following the price cuts, I believe this builds the foundation for its next phase of growth, which is self-driving software.

The more Tesla cars that hit the road today, the greater the company’s future profitability.

Therefore, the significant 83% increase in second-quarter deliveries could have a cascading impact on Tesla’s financial performance in the long term.

Tesla is expensive

Despite the optimistic view of Tesla’s growth prospects in the future, it appears to be trading at a very expensive level based on traditional valuation metrics, such as the price-to-earnings ratio (PE).

It is trading at a trailing PE of 72.8 times, which is twice the average PE of 31 times for the tech stocks under the NASDAQ 100 index.

However, with the transition towards EVs and the future of self-driving cars, I believe investors will find Tesla to be a good addition to their portfolio in the long term.

It is also supported by its cash flow and strong cash position.

The upcoming earnings results on 19 July will provide more clarity on how Tesla’s stock will perform in the near term.

Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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