What’s going on with the Tesla share price?

The Tesla share price is down in double digits since the start of the year. Is this the opportunity Stephen Wright has been waiting for?

| More on:
Young Black woman looking concerned while in front of her laptop

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Since the start of the year, the Tesla (NASDAQ:TSLA) share price has fallen by 28%, due to a combination of lower car sales, operational disruption, and analysts reducing price targets.

The real question for Tesla investors though, is what the long-term picture looks like. Sometimes, a temporary drop in a stock – or even the underlying business – can be a buying opportunity.

Lower sales

The company’s earnings report in January revealed weakness in sales prices. And news from China indicates that Tesla’s sales are continuing to fall in one of its most important end markets.

In February, Tesla sold 60,365 cars produced in its Shanghai gigafactory. That’s down from the 71,447 sold in January and 19% lower than February 2022.

Part of that is attributable to the Lunar New Year falling in February this year, rather than January. Importantly, rival BYD also reported a 36% year-on-year decline.

That indicates to me that there’s something more going on other than Tesla struggling with excess production. And I view that positively – cyclical challenges are likely to come and go over time.

Production issues

Tesla’s gigafactory in Berlin has also been affected by an arson attack that left the plant without power. The damages are estimated to be close to $1bn. 

There’s a case for thinking this might not be a big deal. A limited output might help boost margins and reduce the need for discounting.

I don’t think things are quite so straightforward. Having as many cars on the road is an important source of data for Tesla’s autonomous driving projects. 

The setback might therefore be a serious one. And it led to the share price falling earlier this week. 

Cyclical challenges

In my view, the main issue with Tesla at the moment is that it’s a company that’s more cyclical than most and it’s in the wrong part of the economic cycle. At the business level, that’s about it. 

The trouble is, the stock hasn’t been priced like a cyclical company that’s about to enter a temporary downturn. It’s looked more like a business that’s going to grow rapidly and quickly.

Analysts had been expecting Tesla to sell more cars, increase its revenues, and grow its earnings. But that hasn’t been happening lately, so price targets have come down and the stock has fallen.

So the stock was overpriced at the start of the year due to expectations that Tesla – unlike other car companies – would be immune to cyclical shifts. But what about now?

Buy the dip?

Let’s be clear about one thing – Tesla is more than a car company. It might look like one, but it has an impressive technological edge in a number of potentially important ventures. 

Arguably, the most important thing about the company is its culture. The firm has innovation in its DNA and this could be hugely important as the macroeconomic environment starts to improve.

However, the fact the Tesla share price has come down a lot, doesn’t mean it’s undervalued. It’s cheaper than it was, but I don’t think it’s arrived at value territory yet.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Could the FTSE 100 be set to soar in 2024?

The FTSE 100 keeps threatening to go off on a growth spree. And weak sentiment keeps holding it back. But…

Read more »

Investing Articles

Is this FTSE 100 stalwart the perfect buy for my Stocks and Shares ISA?

As Shell considers leaving London for a New York listing. Stephen Wright wonders whether there’s an undervalued opportunity for his…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

3 things I’d do now to start buying shares

Christopher Ruane explains three steps he'd take to start buying shares for the very first time, if he'd never invested…

Read more »

Investing Articles

Investing £300 a month in FTSE shares could bag me £1,046 monthly passive income

Sumayya Mansoor explains how she’s looking to create an additional income stream through dividend-paying FTSE stocks to build wealth.

Read more »

Investing Articles

£10K to invest? Here’s how I’d turn that into £4,404 annual passive income

This Fool explains how using a £10K lump sum can turn into a passive income stream worth thousands for her…

Read more »

Investing Articles

1 magnificent FTSE 100 stock investors should consider buying

This Fool explains why this FTSE 100 stock is one for investors to seriously consider with its amazing brand power…

Read more »

Rainbow foil balloon of the number two on pink background
Investing For Beginners

2 under-the-radar FTSE 100 stocks under £2

Jon Smith identifies two FTSE 100 stocks that he believes are getting a lack of attention from some investors but…

Read more »

Investing Articles

£8,000 in savings? I’d use it as a start to aim for £30k a year in passive income

Here's how regular investing in the UK stock market, over the long term, could help us build up some nice…

Read more »