Is it Profitable to Take Tesla Shares Now?

Deciding whether it is profitable to buy Tesla shares at the moment requires a careful evaluation of various factors, such as the company’s financial performance, future plans, market conditions, and analyst predictions.

Company Overview

Tesla, Inc. (TSLA) is a leading global electric vehicle (EV) manufacturer and clean energy company. As of the most recent data, Tesla has a market capitalization of approximately $585.3 billion, with around 3.16 billion shares outstanding​​.

Recent Performance

Tesla, Inc. released its earnings report for the first quarter ending on March 31, 2023. In Q1, the company recorded sales of USD 564 million, down from USD 668 million in the previous year. Revenue for the quarter was USD 23,329 million, compared to USD 18,756 million in the previous year. Net income was USD 2,513 million, down from USD 3,318 million in the previous year. Basic earnings per share from continuing operations were USD 0.8, compared to USD 1.07 in the previous year. Diluted earnings per share from continuing operations were USD 0.73, down from USD 0.95 in the previous year.

Tesla has experienced some challenges recently. The company’s gross profit margin declined by 19.3% and net income fell by 24%. This decrease was largely due to Tesla’s decision to reduce the prices of its electric vehicles (EVs) to maintain market share. These price reductions, which occurred multiple times throughout the year, led investors to reduce the price of Tesla shares. Tesla’s Q1 2023 profits also fell significantly as a result of these price cuts. 

Over the past month, the company’s shares have depreciated about 16%, and almost 30% over the last six months. However, Tesla has exhibited growth of roughly 50% since 2023 began. The company remains under the shadow of disheartening news, which continues to distress investors and put pressure on stock prices. Tesla recently shared a complex financial report with the market and announced additional price reductions for some of their electric vehicle models.

The company’s shareholder communication mentioned that the ‘underutilization of new factories’ had an impact on the margin, alongside increased costs for raw materials, commodities, logistics, and warranty commitments. Furthermore, decreased revenues from environmental credits contributed to the profit reduction relative to last year. Nonetheless, the management’s strategy to lower electric vehicle prices, which applies a downward push on the margin, is causing the most worry among investors.

However, Tesla has shown resilience and adaptability in its business strategies. The company has plans to export its Model Y vehicles from Shanghai to Canada, which marks the first time Tesla is doing so. This move also includes the introduction of a cheaper China-made version of the Model Y in Canada. The new Canada Model Y, which is already in production, is expected to be delivered between May and July 2023. This could potentially lead to an increase in sales and profits for the company, which could, in turn, positively affect the company’s share price.

In the meantime, Tesla is aggressively expanding its operations in the Chinese market. The Chinese auto market accounted for more than 30% of Tesla’s worldwide sales and over 20% of its revenue for the first quarter of 2023, as shown in Tesla’s quarterly report and industry statistics.

Revenues from China, which is Tesla’s second-biggest market, hit $4.89 billion, marking a 5.18% rise from the previous year and making up almost 21% of overall revenue. Based on data from the China Passenger Car Association (CPCA), Tesla’s first-quarter sales in China amounted to 137,429 units. This represented more than 32% of the total global delivery volume of 422,875 units, as documented in the report to the SEC.

Additionally, recent reports indicate that Tesla had its highest ever sales of electric cars in China in the first month of the current quarter, surpassing the first months of prior quarters, even with April not yet concluded.

Technical Analysis

*Daily graph

Tesla’s downward trend shows no signs of stopping.In the daily chart, it’s evident that the price is testing a significant level at 167.67, which has acted as a strong support in the past. The stock is trading well below the MA 200, while the RSI is below 50.

If Tesla fails to break past the $166 mark soon, and then test and surpass the $170 threshold, the stocks might plummet further to $140. Regardless, there’s a need for a potent catalyst to revive their upward trajectory.

It’s also crucial for traders to monitor the significant support line between $157.5 and $158. If the stocks can’t sustain above these points, there’s potential for a drop to $155, then to $150, and possibly even as low as $140.

Stock Price Forecast

As for analyst predictions, Tesla’s shares have a consensus rating of “Hold” with a rating score of 2.29 out of 4. The average stock price forecast for Tesla over the next twelve months is $204.06, suggesting a possible upside of 21.5% from the stock’s current price. However, these forecasts vary widely, ranging from a low of $33.33 to a high of $366.67, reflecting the uncertainty surrounding Tesla’s future performance.

Earnings Prospects

Looking at Tesla’s financials, its Earnings Per Share (EPS) estimate for Q2 2023 is $0.78, up slightly from the $0.76 of Q2 2022. Its Annual EPS estimate for FY 2023 is $3.36, lower than the $3.62 of FY 2022. The company ended the fiscal year with a P/E Ratio (TTM) of 49.42, and a net income growth of +127.79%. Its revenue for the year was $81.46 billion, a growth of 51.35%. Despite the company’s aggressive price cuts, it was able to maintain a gross margin of 25.60% and an operating margin of 16.

Conclusion

Given the company’s robust financial health, strong product line, and promising earnings prospects, it may seem like an attractive time to invest in Tesla shares. However, potential investors should consider the volatility and risks associated with investing in the stock market, as well as Tesla’s specific challenges and the wide range of analyst predictions. As always, it’s essential to do thorough research and consider seeking advice from a financial advisor before making investment decisions.