Tesla Stock Down 11% in January – Time to Buy TSLA Stock?

Tesla stock (TSLA) has lost 11.3% in January. The sell-off is not particular to TSLA and there has been a broad-based selling in all tech stocks. The Nasdaq is deep into the correction territory and is now in real danger of getting into a bear market as the tech sell-off looks far from over.

TSLA stock is already in a bear market and is down almost a quarter from the all-time highs that it hit late last year. The stock plummeted after Elon Musk announced his intent to sell shares. However, it still gained 50% in 2021 to outperform not only the S&P 500 but also most EV (electric vehicle) peers.

TSLA stock has been on a fire

Prior to 2021, Tesla rose 740% in 2020 also as markets rerated green energy plays after Joe Biden’s election as the US president. Biden has vowed to pivot towards green energy and has taken several steps to that effect in his first year as the US president. These include re-joining the Paris Climate Deal, mandating the conversion of the federal fleet to zero-emission vehicles, and allocating billions towards EV charging infrastructure. EV charging infra would be crucial to increase the adoption of electric cars as it helps address range anxiety.

Tesla already has a lead over other EV companies in charging infrastructure, thanks to its growing network of Superchargers. However, not all EV companies intend to invest in their own charging network and most are partnering with third parties. Lucid Motors, for instance, has partnered with Electrify America while General Motors went with EVgo.

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Tesla stock recent development

Tesla released the fourth-quarter 2021 earnings yesterday after the markets closed. The company reported revenues of $17.7 billion in the quarter which were 65% higher than the corresponding quarter last year. It reported a GAAP income of $2.3 billion in the quarter while the non-GAAP income was $2.87 billion. The company’s earnings surpassed estimates on both the topline was well as the bottomline. It was the first time in the Elon Musk run company’s history that it reported a quarterly profit in excess of $2 billion.

Prior to Q3 2019, Tesla was profitable in only a handful of quarters. That quarter it posted a surprise profit and said that it expected to be sustainably profitable now. Given the company’s poor track record on profitability, not many believed that the company would be able to deliver sustainable profits. However, it has since then been profitable in all the quarters, including in the first and second quarter of 2020 when the entire global automotive industry was hit due to the lockdowns.

TSLA reported record cash flows

Taking a swipe at bears, Tesla said in its earnings release that “2021 was a breakthrough year for Tesla. There should no longer be doubt about the viability and profitability of electric vehicles. With our deliveries up 87% in 2021, we achieved the highest quarterly operating margin among all volume OEMs, based on the latest available data, demonstrating that EVs can be more profitable than combustion engine vehicles.”

Tesla generated free cash flows of over $5 billion in the year despite spending $5.6 billion towards capex and new plants in the year. The company is investing in two new plants in Berlin and Texas which would further add to its production capacity. Tesla ended 2021 with total cash of $17.5 billion. It had raised over $13 billion as cash in 2020 through three rounds of share issuance.

Tesla provided updates on new plants

Tesla said that it started the production of Model Y at the Texas plant towards the end of 2021. It expects to start the deliveries soon subject to certification. Commenting on the Berlin plant, it said, “Equipment testing through the vehicle production process started late 2021. We are still in the process of finalizing the manufacturing permit from local authorities, which will allow us to start delivering German-made vehicles in Europe. These first
vehicles will be built using 2170 cells.”

Supply-side bottlenecks

Tesla also talked about supply-side bottlenecks which have been plaguing the global automotive industry. The industry lost upwards of $200 billion in sales last year amid the crippling chip shortage. Tesla has delayed the launch of new models including the widely awaited Cybertruck to 2023. The pickup model would compete with Ford’s best-selling F-150 electric which will get the first-mover advantage.

However, despite the challenges the company expects its deliveries to rise more than 50% this year. “The fundamental focus of Tesla this year is scaling output,” said Musk. In the fourth quarter of 2021, Tesla produced 305,840 electric cars which took its total 2021 production to 930,422. The company delivered 936,172 electric cars in the year which is 87% higher than in 2020.

Tesla Autopilot

Tesla is working on an autonomous driving system and recently raised the subscription price to $12,000. While the company does not specify how many people opt for the subscription Musk said that over time most cars would have the FSD (full-self driving).

Musk expressed optimism of progress on the FSD in 2022 even as the regulators are not too happy with the nomenclature as it misrepresents its current abilities. “I would be shocked if we do not achieve full self-driving, safer than a human, this year,” said Musk on the FSD. That said, the company has missed several deadlines on the FSD and robotaxis.

TSLA stock forecast

Tesla is arguably the most polarizing company and it also reflects in its ratings. Of the 41 analysts polled by CNN Business, 19 rate the stock as a buy while 11 rate it as a sell. The remaining 11 analysts have a hold rating. Its median target price is $1,088, which is a 10.8% premium. However, there is a wide dispersion in the stock’s target prices and they range between $295-$1,580. It is hard to think of any other stock with such dispersion in analysts’ target price.

Analysts on Tesla stock

Morgan Stanley is among the most prominent Tesla bull. In its note earlier this month, it said, “We believe car companies and investors may need to rethink their EV strategies in terms of volume per SKU as we continue to see Tesla’s model roll-out unfold.” However, bulls were left somewhat disappointed as the company prioritized deliveries of existing models over the rollout of new models.

Should you buy TSLA stock?

Growth stocks have seen a severe sell-off and Tesla was also trading lower in premarkets today. However, the stock’s valuations don’t look high given its strong growth outlook. While TSLA may remain under pressure in the short term, it should eventually rebound. If you want to play the EV story, Tesla is among the best names.

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