Like many other stocks in 2022, Tesla (TSLA -0.77%) The bear market was devastated. Unlike many of these same stocks, selling has accelerated in recent months Although the stock has recovered somewhat from its lows, it is still down 46% since October and 70% since the end of 2021.
While there are plenty of reasons to conclude that the decline is justified, Tesla stock is starting to look tempting at these levels. Let’s look at three challenges that have pushed the stock lower to see if Tesla is a buy.
1. Tesla had poor 2022 deliveries
Just last week, Tesla announced its production and delivery results for the fourth quarter, and the numbers fell short of expectations.
The company said it built 439,701 vehicles and delivered 405,278 in the fourth quarter. For the full year, deliveries rose 40% to 1.31 million, while production rose 47% to 1.37 million. Both metrics fell short of Tesla’s long-term goal of 50% growth. For context, Wall Street expected 415,000 electric vehicles (EVs) to be delivered in the fourth quarter and 1.8 million for the year.
Perhaps most troubling for investors was the lackluster performance that came as the company offered steep discounts to prospective buyers through the end of 2022, offering $7,500 to those who took delivery of a Model 3 or Model Y in the final 10 days of the year. Tesla has also cut the price of its most popular model for Chinese customers.
2. The Twitter Factor
It’s no coincidence that Tesla’s stock has fallen 46% since late October, when CEO Elon Musk appointed himself CEO of social media company Twitter — shortly after taking the company private. Musk was already spread pretty thin with his various responsibilities at Tesla, SpaceX, Neuralink, and The Boring Company.
Given the struggling economy and the challenges Tesla already faces, the mysterious leader likely has his hands full. Some investors feel that Musk is taking on too much and is uncomfortable holding Tesla stock while its leader is focusing too much on his latest venture. This growing lack of investor confidence will likely continue to weigh on the stock — at least until Musk is handed the job of running Twitter.
3. The economy is weighing on Tesla
If there’s one factor that’s been front and center over the past year, it’s been macroeconomic headwinds — all of which will continue to drag down car sales.
Inflation skyrocketed last year, reaching a 40-year high. The Federal Reserve responded by raising prime lending rates six times in 2022, to slow the economy and indirectly cool rising inflation.
As a result, everything bought on credit is more expensive, as interest rates hit their highest level in 15 years. That pushed credit card rates to record highs and auto loan rates to 11-year highs. Furthermore, the Fed is expected to continue raising rates, which are expected to peak between 5% and 5.5% in 2023.
The combination of high prices and rising interest rates has already put a strain on consumer budgets, putting a luxury brand like Tesla out of reach for most car buyers. In fact, the data suggests that even wealthier consumers — part of Tesla’s largest customer pool — are cutting costs.
Tesla Stock: A Compelling Opportunity?
While the reasons for its decline are certainly understandable, we arrive at the ultimate investment question: Is Tesla stock a buy? The answer, like many things, depends on who you are as an investor.
Every problem mentioned above is short-term in nature — as the old saying goes, “this too shall pass.” That’s not to say stocks won’t fall further, but calling a bottom is notoriously difficult. Investors who were excited about Tesla when the stock was above $400 should be thrilled now that shares are selling at a 70% discount.
As for Tesla’s valuation, with a price-to-earnings ratio of 38, Tesla is cheaper than ever. However, it is still sold at a premium S&P 500, which is trading at just 20 times earnings. Those who fill their portfolios with value stocks are less likely to be swayed by Tesla’s current sticker price.
The global electric vehicle market was valued at $165 billion in 2021 and is expected to reach $434 billion by 2028. Tesla sold $50.2 billion in autos in the first three quarters of 2022 and is expected to end the year with about $83 billion in revenue, according to analysts’ consensus estimates, which helps explain the magnitude of its opportunities that remain.
So for those with the stomach for a little volatility, Tesla stock offers significant upside potential.