Should I buy Tesla stock as it dips?

Tesla stock has been in the wars since the start of 2024, massively underperforming other members of the Magnificent Seven. Is this an opportunity?

| More on:
Middle-aged white man pulling an aggrieved face while looking at a screen

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.

Tesla (NASDAQ:TSLA) stock keeps on falling, but it’s not really looking much cheaper. The electric vehicle (EV) manufacturer has lost its dominant position in the market and is no longer growing — at least that’s what the most recent delivery figures suggest. I don’t think the valuation can be justified despite the company’s positioning in the self-driving segment.

Deliveries stun

Tesla vastly underdelivered during Q1. On Tuesday 2 April, the company said it delivered 386,810 vehicles in Q1 and produced 433,371 vehicles. By comparison, the Elon Musk-company delivered a total of 484,507 vehicles in Q4 of 2023 and delivered 422,875 in Q1 of 2023. This was a considerable miss versus expectations, even after analysts had slashed their estimates in recent weeks. The declining volume was put down to factory shutdowns, an arson attack at its Gigafactory Berlin, and diversions caused by the attacks on shipping lanes in the Red Sea.

Extremely expensive

There’s only one other car company that trades at more than 50 times earnings, and that’s Ferrari. However, these are two very different companies. Tesla has historically traded at a premium because of its strong growth trajectory, and margins — although these margins are nowhere near as strong as Ferrari’s. However, margins have been contracting and the growth story just isn’t as strong.

Currently, and despite the share price falling 33% since the turn of the year, Tesla is trading at 58.6 times forward earnings. In 2025, that number is expected to fall to 42.1 times. Moving forward, the price-to-earnings ratio is forecast to fall to 35.4 times in 2026, and 29.2 times in 2027.

While the growth may look appealing, the stock still looks overvalued according to medium-term growth expectations. And a sign of that is the price-to-earnings-to-growth (PEG) ratio which stands at 3.83. When we remember that fair value is indicated by the number ‘one’, 3.83 suggests that Tesla is vastly overvalued.

More to offer

Tesla has more to offer than medium-term growth. But this is where it gets a little speculative. Tesla is no longer the world’s largest producer of EVs, but it’s positioning itself as a leader in self-driving. And while autopilot comes as standard on all new Tesla cars, we probably won’t see truly autonomous vehicles on our roads until the 2030s.

In the long run, Musk is looking at the possibility of creating an autonomous fleet of taxis. Cutting out the middle men, this has the capacity of being a huge revenue generating opportunity. However, the issue is that we’re still some distance away from seeing this happen.

So, while Tesla might have more to offer, we’re talking so many years into the future that an investment becomes pretty speculative. In fact, we could see other companies take a commanding position in the self-driving sector by then. As much as I love what Tesla is doing, and has done, I’m not sure I can put my money behind the company at this moment in time.

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.

James Fox 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

Young Caucasian woman holding up four fingers
Investing Articles

7%+ dividend yields! 4 FTSE 100 shares for investors to consider buying in April

These FTSE shares offer dividend yields comfortably above the index average of 3.7%. Here's why they could be good passive…

Read more »

Dividend Shares

£10k in an ISA? Here’s how to generate a ton of passive income

Passive income can provide a lot more financial freedom and security. Here’s an easy way to generate some within an…

Read more »

Investing Articles

The Aviva dividend yield’s already over 7%. Could it go higher?

Christopher Ruane explains why he thinks the Aviva dividend could be on course to grow this year and beyond. Might…

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

2 shares I’d buy to try and double my money in 10 years

Stephen Wright thinks there are still opportunities to to buy UK shares that can double in value over the next…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

NIO stock has crashed! Here’s why I still wouldn’t touch it with a bargepole

I've been watching NIO stock falling heavily, and wondering when might be a good time to get in cheaply. Here's…

Read more »

Investing Articles

Why have Rolls-Royce shares fallen this week?

Rolls-Royce shares remain the best performing on the FTSE 100 over the past year, but there's been some pullback. Dr…

Read more »

Investing Articles

With a 4.3% yield, I consider this FTSE company an exceptional investment

Oliver Rodzianko say this FTSE company is focused on quality and long-term survival. As such, he thinks he'll hold it…

Read more »

Investing Articles

How I’d invest £10,000 in a Stocks & Shares ISA and aim for a £45,500 second income

Millions of us aren’t earning the second income we deserve. Here, Dr James Fox explains how he’d get his savings…

Read more »