Tesla Stock Turnaround Hinges on Three Key Factors: Analyst
Tesla stock has fallen by more than 27% in 2022, and other Magnificent Seven firms Apple and Alphabet have also seen their shares drop this year. In this article, we explore the reasons behind Tesla’s decline and highlight three factors that could help turn its fortunes around.
Why Tesla Is a Buy at These Levels
Despite Tesla’s poor performance this year, George JZ, managing director of Kor Genuity, believes now may be a good buying opportunity. JZ points out that the reason for Tesla’s lagging stock price is simple: poor earnings revisions over the past 12 months. However, he believes that worries likely exceed the reality and that there are reasons to be optimistic about the company’s future.
Three Factors Needed for Tesla to Turn Things Around
JZ identifies three key factors that could help Tesla rebound and perform well in the long term:
– Next-generation vehicle production must ramp up or investors must gain confidence in its success.
– Margins need to go up through increased full self-driving (FSD) penetration, which leverages Tesla’s artificial intelligence capabilities.
– Continuation of growth in the energy storage segment.
Next-Generation Vehicle Production and Confidence
JZ believes that the best way to gauge Tesla’s performance is to look at its prices in the US, as they have been stable over the past few months. He acknowledges that there are still many concerns, such as the delay of the new year in China pushed to February and the decrease in numbers, leading to the worry that the company has overcorrected.
Margins and Full Self-Driving Penetration
JZ says that margins will likely increase through FSD penetration, with the most significant lever for this being the rise of FSD in volumes and usage. He believes that the company should cut the cost of FSD to incentivize usage, ultimately improving its margins. JZ notes that FSD has a high gross margin.
Energy Storage Business Growth
The energy storage business has the potential for considerable growth, according to JZ. He notes that Tesla already has a positive reputation in this field and that it is reasonable to assume that it will continue to do well.
Price Wars and Boosting Demand
JZ points out that there has been a temporary ebb in price declines, but there are concerns about Tesla’s position in China, where there are several good OEM competitors and pure-play EV companies. Despite this, JZ believes Tesla’s China factory is operating at full tilt and can produce about 950,000 vehicles, leaving the company in a good place in that country.
Tesla’s Upside Potential
JZ’s price target for Tesla is in the 230s, based on 26 times 2026 estimates. He believes that the company will achieve this target as volume starts to pick up next year and the year after, based on increased cyber truck production and the next-generation vehicle. Importantly, he thinks that margins will start to improve in the near term, particularly as price reductions abate, and costs continue to come down.
Hot Take: Tesla Shows Promise Despite Current Weakness
Despite Tesla’s recent decline in share price, JZ believes that there is still potential for investment in the company. He is optimistic that the rebound could occur through the successful ramp-up of next-generation vehicles, increased FSD penetration, and the continuation of energy storage business growth.
These factors provide investors with reasons for optimism and illustrate that even though Tesla has underperformed in 2022, it still has the potential to emerge as a dominant player in the electric vehicle market.
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