The Tesla (NASDAQ:TSLA) share price has crashed by almost two-thirds in 2022. Yet despite this sharp reversal City brokers largely believe Tesla shares are a buy right now.
Stock screener Digital Look says 22 brokers with ratings on Elon Musk’s business consider it a ‘buy.’ There are 13 analysts with a neutral view on the company’s shares. Two have slapped a ‘sell’ rating on it.
What are the main reasons to buy and avoid Tesla shares today? And should investors buy them for their portfolios in 2023?
Two reasons to buy…
Right now Tesla is the biggest name in the world of electric vehicles (EVs). So it’s in pole position to exploit this rapidly growing market. Consumers are increasingly switching to these ‘cleaner’ vehicles as worries over the environment and regulations grow.
As the chart below shows, analysts at Precedence Research for example think the EV market will be five times bigger in 2030 than it is today.
Fans of Tesla stock would argue that this enormous growth potential isn’t reflected in its current share price. Today it commands a forward price-to-earnings growth (PEG) ratio of 0.7. Any reading below 1 indicates that a stock is undervalued.
For long-term investors, recent share price weakness might be viewed as a chance to grab a bargain.
…And not to buy
The problem for Tesla is that it will have a fight on its hands to maintain its market dominance as the competition ramps up.
The company had a 65% share of all new EV sales between January and September, according to S&P Global Mobility. But it expects Texas company’s share to fall below 20% in 2025 “as new, more affordable options arrive, offering equal or better technology and production build.”
There will be 159 different EV manufacturers, it predicts, more than three times the current number.
This is particularly worrying as Tesla suffers a developing image crisis. Product recalls have battered the company’s reputation as a bastion of cutting-edge technology. A massive 3.8m vehicles have been recalled so far in 2022, according to the US Department of Transportation.
Ongoing controversies surrounding maverick founder Elon Musk’s Twitter tenure could also be hitting Tesla’s brand power. The carmaker’s image is linked closely to that of its CEO. And some who would potentially buy his vehicles could dislike his views.
Gary Black, managing partner of investment firm The Future Fund, recently said on Musk’s social media platform that “some EV buyers don’t want controversy in their choice of cars, and at the margin may choose a different EV brand to avoid [this].”
The verdict on Tesla shares
Today Tesla is the leading player in a fast-growing market. But the threats to its dominance (and therefore to future profits) are growing. On balance I’d be happy to buy other US and UK shares in 2023.
