A decline of 35% since the beginning of the year, Tesla‘S (NASDAQ: TSLA) The stock is in a downward spiral as challenges such as high interest rates and declining demand for electric vehicles (EV) weigh on business performance. That said, investor sentiment seems to be are improving after the company’s first-quarter earnings call, when CEO Elon Musk outlined his vision for the future.
Will the controversial billionaire over-promise and under-deliver, or is this the start of a new sustainable bull run? Let’s dig deeper to find out what the next five years could hold have inside shop for Tesla stock.
First quarter profits were unimpressive
With Tesla’s share price up almost 20% since its earnings release on April 23, casual observers could be forgiven for assuming that operating results were good. They weren’t. In fact, they were the opposite. Turnover decreased by 9% year after year to $21.3 billion, while profit per share (EPS) of 45 cents missed the analyst consensus of 51 cents.
Overall, Tesla sells fewer cars for less money. And this has a lot to do with macroeconomic challenges like high interest rates, which erode demand for new vehicles by making financing less affordable. Management has attempted to address this challenge with price reductions across the company’s range. But while these efforts have likely limited the revenue decline, they are also undermining Tesla’s once-high operating margins, which fell from 11.4% to just 5.5% year over year.
CEO Elon Musk suggests that Tesla is not just a car company. However, car sales represented about 86% of sales in the first quarter. And while industries like energy storage and services showed modest growth rates (7% and 25% respectively), this wasn’t enough to move the trend.
Tesla is not a car company, or is it?
With operating results in a tailspin, the recent rise in Tesla stock prices can only be explained by investors’ confidence in Elon Musk’s ability to weather the storm. In the first quarter earnings call, the controversial billionaire highlighted Tesla’s long-term strategy: which will include the accelerated rollout of more affordable options as early as early 2025.
More importantly, Musk claims the new vehicles will use Tesla’s existing Model 3 production lines, meaning the supply chain is less complex than new platforms like the Cybertruck, which have had to overcome significant production delays and cost overruns. Musk also highlights Tesla’s potential in autonomous driving with a robotaxi, which he plans to unveil in August.
Analysts at UBS predict that the autonomous taxi market could be worth as much as $2 trillion by 2030. And this would certainly be enough opportunities to overtake Tesla’s traditional EV business a distant afterthought. But It It’s still unclear when (or even if) the technology will be ready for widespread adoption.
What do the next five years have in store for Tesla?
Tesla’s history gives it to us a terribly clearly lesson: don’t bet against Elon Musk on the long run. The company has returned more than 900% in the past five years under his visionary leadership, and he shows no signs of dropping the ball anytime soon.
That said, Musk also has a track record of overpromising and underdelivering. The executive has regularly pushed back his timelines for fully self-driving cars, producing vehicles (like the Cybertruck) at dramatically higher than expected retail prices. With this in mind, I think investors are placing too much faith in his most recent comments. And with a forward price-earnings ratio (P/E) multiple of 63, Tesla’s valuation is starting to look high given its deteriorating fundamentals.
Tesla remains a great way to bet on Musk’s leadership and potential to transition away from dependence on the auto sector. And it looks like it will outperform the market over the next five years. however, the The present looks bleak and investors may want to wait for a lower price before buying the stock.
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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Tesla. The Motley Fool has a disclosure policy.
Where will Tesla stock be in five years? was originally published by The Motley Fool
