If 2022 was the year the US tech titans fell back to earth, 2023 was the year they shot back up to the moon. Among the usual suspects was a certain electric vehicle (EV) maker. By the last trading day in December, the Tesla (NASDAQ: TSLA) share price had soared 130%.
Today, I’m looking at the reasons for this stellar recovery and asking whether this momentum can continue.
Slowing growth
The really interesting thing about Tesla’s mega-bounce is that it doesn’t seem all that related to what’s been going on at the company.
Based on the numbers alone, 2023 was a pretty tame year. We know, for example, that revenue growth slowed significantly.
Much of this can probably be blamed on higher interest rates. It’s only natural that consumers are willing to postpone buying a new car — especially an expensive EV — when paying the mortgage is more of a challenge.
This headwind led Tesla to drop prices several times. The intention was clearly to continue to maintain (and possibly grow) market share at a time when other manufacturers were reluctant to do the same.
The problem is that this has inevitably reduced margins. That’s something investors won’t want to see sticking around for too long.
The Cybertruck is here
With my crystal ball refusing to cooperate, it’s impossible to know whether Tesla will accelerate next year or slip into reverse. But there are a few things that could work (and arguably already have been working) in its favour.
Based on the behaviour of markets during the last few months of 2023, growth stocks are back in fashion. With signs that interest rates might soon start to fall, investors inevitably become more willing to back highly-rated companies in the belief that discretionary spending will rise again.
Speaking of which, Tesla still looks eye-wateringly expensive compared to most stocks. But it’s a lot cheaper than it used to be. If sales of the recently launched Cybertruck hit predictions (and that’s a mighty ‘if’), taking a position now could still prove lucrative for me.
Risks remain
On the other hand, one shouldn’t get too comfortable. The hope that interest rates might be cut has quickly become an expectation. If the economic data doesn’t prove as robust as some believe and the first cut is delayed, demand for Tesla EVs could stay soft.
Even if things pan out as analysts hope, there’s an argument that gains in the US may moderate after such a brilliant year for the ‘Magnificent Seven’ tech stocks (Apple, Microsoft, Alphabet, Amazon, Meta, Nvidia and Tesla itself). Or the rest of the pack may simply pick up the slack — we simply don’t know.
The Elon effect
What seems certain is that Elon Musk will remain a divisive figure. To me, he remains the company’s biggest asset. Taking his controversial purchase of Twitter/X into account, he’s also arguably its biggest liability.
It’s partly because of this that I prefer to invest via funds. As evidence of this, the largest position in my Stocks and Shares ISA remains FTSE 100-listed Scottish Mortgage. Based on its most recent factsheet, Tesla is the trust’s sixth-largest holding.
Although I can’t see last year’s performance being repeated, time will tell whether buying Tesla directly would have been a great move on my part.
