Tesla: Is this the cut we buy into?
Is it over...?
Tesla has had an "annus horribilis" so far in 2024 and the stock is no longer even mentioned as a Magnificent 7 stock. Is this just the beginning of the downturn and there is much more bad news to come, or would you dare to be contrarian at any stage in this stock?
The draw-down
Tesla has been in a drawdown for 861 days, the 2nd longest downturn since its IPO in 2010. Currently 60% below its November 2021 peak. Coincidentally, the drawdown started around the time Musk started focusing on Twitter.
Source: Compound
GS cutting Tesla numbers & PT
Now, this is neither a capitalization downgrade nor necessarily "thought-leadership". It is more catching up with what the stock has been trading. We do however find cuts like these interesting as potential for a contrarian trade. What GS actually is saying:
1. "....lowering Tesla estimates to better reflect what we believe are both production (e.g. Model 3 ramp pace, and downtime in Berlin tied to the Red Sea conflict/power loss) and market headwinds...
2. Overall we reduce our EPS estimates including SBC to /$3.80 from $4.40 for next year....
3. Our 12-month price target is now $190 (from $220 prior), and is based on 50X Q5-Q8 EPS ...."
Source: GS
Tesla China exports
Exports from the China factory were down yoy for January and February in total.
Source: CPCA
There is an app for that...
Tesla app downloads in key regions.
Source: Sensor Tower
Could Tesla be a sub-100 stock?
"We believe a downside scenario could be ~$65-$85 using a multiple of ~30X applied to 2024 EPS....Key downside risks to our view relate to potentially larger vehicle price reductions than we expect, increased competition in EVs, delays with products/capabilities like FSD/the third generation platform/4680, key person risk, the internal control environment, margins, and operational risks associated with Tesla's high degree of vertical integration". (Goldman Sachs) Note that this is not their base case and that there is an upside scenario as well. Above text sounds a little (a lot) like an IPO disclaimer - ie. - listing every possible risk out there.
What's happening in the EV market?
1. Brand new Ford F-150 Lightning trucks, Ford's only EV trucks, are selling for $15,000 below msrp. That's a ~25% drop below the MSRP and these trucks still are not selling. In fact, many of these trucks have been on dealers' lots for over 150 days.
2. Just 2 months ago, Ford, announced that they will be reducing production of its EV due to weak demand. (TKL)
Who shall be the 7th? LLY vs TSLA
LLY has outperformed TSLA by 65% return YTD as the rotation between the two mega-cap compounders has been continuing.
Source: FactSet
Launching a new product for Tesla appears to take forever...
BYD seems to do it effortlessly. Why? Bernstein looks into this question. "Tesla believes their cars have a broad appeal, aiming to develop a few models to drive global leading market share, and upgrading via over-the-air software updates rather modifying sheet metal designs. BYD on the flip has a car for every purpose & approach which includes fewer platforms with many derivatives. Tesla & BYD total R&D spending similar, but we estimate Tesla has ~15k engineers vs BYD at ~90k. Tesla does seem to have over-estimated how many model 3’s and Y’s it might sell. BYD adopts at a much more proactive pace and major platform upgrades or new models every ~3 years. Tesla’s focus on differentiated high volume products has worked, but moving forward it remains in question especially as competition in the space ramps." (Bernstein)
TSLA vs. Bitcoin
Since this past September, the historically positive correlation has broken down. It’s been difficult for TSLA shares to break from the decidedly negative sentiment surrounding EV fundamentals and positioning. The inversion of Tesla/BTC correlation speaks to how Tesla may be used to ‘fund’ other thematic OWs with greater near-term earnings visibility (decelerating EV biz. has coincided with the AI theme). (Morgan Stanley)
Source: Refinitiv
Very oversold
TSLA is very oversold. Note the stock is approaching rather big support levels. We don't like catching falling knives (too early) but the 160/150 area in Tesla is big...
Source: Refinitiv
Never bet against Elon...
In a world of falling vols, we find TSLA trading with relatively attractive vols for the ones that like to receive premium. One example for the contrarian mind here is selling downside puts a few months out. The June 150 put goes for around $10. Would you be happy to buy TSLA at $140 in 3 months is basically the question? Chart shows 3 month implied vs realized vols.
Source: Refinitiv
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