Stock In Focus: Tesla

Tesla announced its earnings report last Wednesday. While the fourth-quarter Auto Gross Margin of 17.2% beat the analysts' 16.7% estimate, the company said that growth would be "notably slower" in 2024, in contrast to its stated 50% CAGR (Compound Annual Growth Rate) target. Notably, Tesla did not provide 2024 guidance, which disappointed Wall Street, sending the price lower on Thursday to close at $182.63, down $25 (12%) from $207.83. Consequently, analysts adjusted the 2024 growth estimates, down from 19% to 13%. 

Is TSLA a buy or sell, closing today at $191.59? It depends -- is the glass half-empty or half-full?

THE BULL CASE

You are bullish if your outlook is optimistic.

Tesla dominates the US EV (Electric Vehicle) market, with 1.2 million sales in 2023. It exceeded its target of 1.8 million vehicle deliveries in 2023. Tesla Model Y is the 2023 best-selling car in the world in both EV and ICE (Internal Combustion Engine) categories. Tesla launched the widely anticipated and futuristic Tesla Cybertruck, reported to have as many as 2 million reservations. Tesla is poised to start working on its next-generation vehicle: an affordable EV priced at $25k widely believed to broaden its customer base further. 

TSLA stock's price more than doubled in 2023 and grew 102%. Many consider Tesla not a legacy car maker like GM (General Motors) -- has a low P/E multiple of 5.36 -- but a tech company similar to Apple, deserving of a high P/E multiple of 61. Morgan Stanley analyst Adam Jonas has an "overweight" rating and the highest price target at $345. Cathie Wood of Ark Invest has a long-term median target of $2,000 per share, with Robotaxi as the main growth driver.

THE BEAR CASE

You are bearish if your outlook is pessimistic.

There are reports that EV demand has softened, and Tesla's market share will shrink due to increasing competition in the EV market. Bears complain about Tesla favoring cutting prices to gain market share over preserving its profit margins.

LONG AND SHORT

In Wall Street parlance, LONG and SHORT have two meanings related to possession and outlook. You are LONG a security if you bought and SHORT if you sold. Also, you are LONG if you are bullish and SHORT if you are bearish.

TRADING THE STOCK

If your outlook is bullish (LONG), you may choose to buy shares of stock and be LONG on the stock, which you can consider cheap after the 12% drop. On the other hand, if you are bearish (SHORT), you may SELL-SHORT the stock and be SHORT on the stock. Be careful with the associated risks in selling short; interest payments will be due on the borrowed shares, and there is no theoretical limit for SELL-SHORT losses.

TRADING OPTIONS

You may buy a CALL Option on TSLA if your outlook is bullish. You are LONG both because you are bullish and you purchased the stock. Options have the advantage of being cheaper than buying the stock outright. Recall that a CALL Option gives you the right, but not the obligation, to purchase the stock at a given (strike) price.

You may buy a PUT Option on TSLA if you are bearish. You are SHORT because you are bearish, but also LONG because you purchased the PUT Option. Recall that a PUT Option gives you the right, but not the obligation, to sell the stock at a given (strike) price.

Editor's Note

In breaking news, a Delaware Chancery court has voided Tesla CEO Elon Musk's $55 billion pay package, sending the stock price down in After-Hours-Trading to $184 (3.9%).