Contemplates Purchasing Tesla Shares Prior to January 2?
Tesla's (TSLA -4.95%) shares experienced a significant decrease by 42% during the initial months of 2024. However, the situation has drastically changed, and as of now, the stock has skyrocketed by an impressive 86% since the beginning of the year. This remarkable turnaround has even surpassed the all-time high it reached back in 2021.
The reason behind this remarkable reversal is speculation that CEO Elon Musk's support for Donald Trump's election campaign could help Tesla benefit from the incoming administration's policies. As a result, most of the stock's gains for 2024 took place after Election Day on Nov. 5.
As the year draws to a close, Tesla is about to release its fourth-quarter production and delivery figures for its electric vehicles (EVs). These statistics are due to be announced on Jan. 2, and they have the potential to have a significant impact on the stock's price. So, should investors consider buying it beforehand?
Tesla's Electric Vehicle Deliveries Might Decrease in 2024
Despite the stock performing exceptionally well, its core business seems to be struggling. Tesla delivered 1.29 million EVs during the first three quarters of 2024, which represents a 2.3% decrease compared to the same period the previous year. This suggests that Tesla's EV deliveries may experience their first annual decline since the company introduced its flagship Model S in 2011.
This is a problem since EV sales contribute to 79% of the company's total revenue. If this part of its business isn't performing well, it becomes difficult to justify further increases in the stock price (more on this later).
As recently as the previous year, Musk predicted a 50% annual increase in EV production, but this can't be achieved if sales aren't keeping up.
The company faces several challenges. Demand for EVs seems to be decreasing as a whole, with traditional automakers like Ford and General Motors cutting their investments into this segment by billions of dollars over the past couple of years. Ford even scrapped its new electric sport utility vehicle just four months ago after investing $1.9 billion in its development. Instead, they will focus on hybrids, which are more familiar to drivers of traditional gas-powered cars and also sell at a lower price point.
Competition from low-cost EV manufacturers in countries like China has also affected Tesla. For instance, BYD sells a $10,000 EV model in China and plans to launch it in Europe in 2025. Tesla has a substantial presence in both of these markets, but it can't compete with such low prices. This situation isn't likely to change, as Musk recently canceled his plans to produce a low-cost EV.
Deliveries may not be the only factor driving Tesla's stock
You might be wondering why Tesla's stock is rapidly increasing despite the numerous issues mentioned above. Investors are more interested in the company's full self-driving (FSD) software, which has the potential to revolutionize its business. In fact, the reason Musk scrapped the low-cost EV was due to his desire to focus on Tesla's new autonomous robotaxi, known as the Cybercab.
The Cybercab is expected to enter mass production in 2026 and won't feature pedals or a steering wheel because it will be entirely controlled by Tesla's FSD software. Tesla plans to operate an autonomous ride-hailing network where Cybercabs can generate revenue around the clock by transporting passengers.
Consumers will be able to purchase the Cybercab for personal use, or they can use it to run their own autonomous ride-hailing business.
FSD is currently available in beta mode for Tesla's passenger EVs, but it is not yet approved for unsupervised use anywhere in the U.S. Investors are optimistic that the incoming Trump administration will have a more relaxed regulatory approach, which could expedite FSD's approval.
Top Wall Street technology analyst Dan Ives believes that FSD presents a $1 trillion opportunity for Tesla. Similarly, Cathie Wood's Ark Invest believes that the company will generate $1.2 trillion in annual revenue by 2029, with 63% coming from FSD and the Cybercab. This is why Tesla's stock saw significant growth after the election - the faster FSD is approved, the sooner the company can unlock its value.
Tesla's stock is currently overvalued
Before investors consider buying the stock before Jan. 2, they should consider its valuation. Based on Tesla's trailing-12-month earnings per share of $3.65, the stock trades at a price-to-earnings ratio (P/E) of 125. This makes it one of the most expensive large-cap tech stocks in the U.S. - it's significantly more expensive than Nvidia!
The Nasdaq-100 technology index trades at a P/E of 33.9, and considering it's home to most of Tesla's big-tech peers, it puts Tesla's sky-high valuation into perspective.
As I mentioned earlier, Tesla's EV deliveries are expected to decline in 2024 once the final numbers for the year are released on Jan. 2. Without growth, its stock has no justifiable reason to trade at such a high price.
Musk is optimistic that deliveries could increase by up to 30% in 2025. However, it's unclear where this growth will come from since there's no low-cost EV on the horizon, and the Cybercab won't enter mass production until 2026.
Due to this, it's highly unlikely that the Jan. 2 report will include anything that will make Tesla appear appealing at its current price, thereby encouraging investors who don't already own it to hold back until we witness a substantial drop in value.
After acknowledging the potential decrease in Tesla's EV deliveries for 2024, some investors might question whether it's a good time to invest in the company's stock. However, the allure of Tesla's full self-driving (FSD) software and the anticipated Cybercab, which could transform the business, continues to attract financing in the finance sector.
Despite Tesla's core business facing challenges, the company's focus on FSD and the development of the Cybercab has kept investor interest high, driving up the stock price. Even with the potential for a decrease in EV deliveries, the FSD software's potential to revolutionize Tesla's business and generate significant revenue is still a major draw for investors, justifying continued investment in the finance realm.
