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Tesla’s share price has fallen 34%. Should I buy the stock now?

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The Tesla (NASDAQ: TSLA) share price has fallen significantly in recent months. Last week, it closed at $590. That’s about 34% below its all-time high of $900, set in January. We need to put this drop in perspective though. Over the last year, Tesla stock is still up about 275%.

Has Tesla’s recent share price weakness provided a buying opportunity for me? Let’s take a look at the stock.

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Tesla continues to advance

Tesla’s Q1 2021 results showed the company is continuing to advance. For the period, total deliveries came in at 184,887 vehicles, up 109% year-on-year. Revenue came in at $10.4bn, up 74% year-on-year. This growth is encouraging.

Meanwhile, Tesla continues to make progress in the self-driving space. Last week, CEO Elon Musk tweeted that he expects Tesla to release an improved version of its full self-driving technology within the next two-to-three weeks.

It’s worth noting that ARK Invest portfolio manager Cathie Wood – who has a great track record when it comes to investing in Tesla stock – is very bullish on its self-driving technology. ARK believes there’s a 50% chance Tesla will achieve fully autonomous driving within five years. This could allow the company to scale its planned robo-taxi service quickly.

Wood currently has a $3,000 price target (the bull case target is $4,000) for Tesla, on the back of this self-driving technology. That’s significantly higher than the current share price. 

Tesla now has competition 

While this is all very positive, I continue to have reservations about buying Tesla stock. One concern is in relation to the electric vehicle competition Tesla is going to face in the years ahead. Make no mistake, the level of competition in this industry is going to be very high.

Volkswagen, for example, recently said that, by 2030, it expects 70% of its cars sold in Europe to be fully electric. It also said that it’s targeting an EV market share of over 50% in China and the US by the end of the decade.

Meanwhile Daimler, the owner of Mercedes-Benz, recently unveiled its ‘EQS’ – the electric version of its Mercedes-Benz S-Class luxury sedan. Analysts at Deutsche Bank have called the EQS – which has a range of 770 kilometres and a display screen that covers almost the entire dashboard – ‘Mercedes’ Tesla fighter’.

Ford and General Motors are also taking the EV race very seriously. Ford recently advised that every car it sells in Europe will be ‘zero-emissions capable’ by 2026 and pure-electric by 2030. GM, meanwhile, recently said that between now and 2025, it will spend nearly $30bn on electric cars and autonomous vehicles, while launching 30 electric car models globally. “We want to lead in this space,” the company said.

So, Tesla certainly has its work cut out to remain the industry leader.

Another concern for me is that, historically, auto manufacturers haven’t been very profitable companies. Fundsmith manager Terry Smith explains this well here in his annual meeting (around the 48-minute mark). Smith doesn’t invest in car manufacturers due to the ‘poor economics’ of the industry and the fact that you can “extend the life of the product.”

Finally, Tesla’s valuation still looks high to me. I just don’t see the company’s market-cap of $570bn (roughly 13x Ford’s market-cap) as justified given the level of competition.

TSLA stock: my move now

Weighing everything up, I’m going to continue to leave Tesla shares alone, for now.

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Edward Sheldon has a position in Fundsmith. The Motley Fool UK owns shares of and 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.

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