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Tesla (TSLA - Free Report) is the leading EV maker by far and the world is doubling down on EV adoption with government subsidies, policy changes and infrastructure buildup. This should be the perfect backdrop for solid growth into the foreseeable future, which is what CEO Elon Musk has talked about on the earnings call.
The competition is not sitting idle either because as Musk himself says, “We are still a very small percentage of the total vehicles on the road” and “We're about a long way to go to even reach 1% of the global fleet.” The scope for expansion is huge and there is obviously room to accommodate more than one player. Therefore, share erosion at Tesla is only to be expected even as its volumes grow.
According to elektrek which quotes registration data from Experian, Tesla currently accounts for 68% of registered electric vehicles in the U.S., one of the largest EV markets. That’s great, but it’s down from 79% at the end of 2020 and close to 70% at the end of 2021, as more players enter the market. But as the site points out, Tesla conceded a little over 1% of its revenue in the first half of this year to rivals, which grew their U.S. deliveries 58%. All four Tesla models were in the top 5, with only Ford’s (F - Free Report) Mustang Mach-E pushing into the third position. Being the first mover, Tesla has had the time to create its own fan base, which is just as well because the established players now taking share already have theirs.
As this analysis by Troy Teslike shows, Tesla’s international deliveries are gradually catching up with demand, as seen from the declining backlog, although some regions continue to see extended wait times. Musk explained on the call that the main problem is outbound logistics because production is typically backend loaded (“roughly two-thirds of our Q3 deliveries occurred in September and one-third in the final two weeks”). There simply aren’t enough ships from Shanghai to Europe or local trucking in parts of the U.S. and Europe to deal with this sudden burst in demand. This problem will take time to iron out, so the fourth quarter won’t be immune to it.
The delivery issue stems from more demand not less and so, should be viewed as a problem that is good to have. Especially since management is on it. The goal is to spread out builds to ease pressure at the end of the period and we may expect some improvement next year.
It is hard to view the above situation negatively. And it’s worth noting that Tesla also has an energy business that is expected to grow faster than its vehicles business, which Musk thinks will grow at 30% a year for the foreseeable future. And any recession that may happen next year will not have them taking down vehicle production. There is just so much demand out there.
Therefore, I would be the last person asking you to sell Tesla shares. If you’re concerned about valuation, you could sit on it, because valuation has fluctuated wildly, as the company gradually proved its business (and production) model. Although expensive at 47.71X P/E, it is the lowest level the shares have traded this year.
Tesla does have problems related to raw material procurement as well as the logistics problems discussed above. The strong U.S. dollar also doesn’t help a company that generates a significant percentage of sales overseas and does a significant amount of production within the country.
The recession could create the perfect opportunity to load up, as the shares could get beaten down further (they are down 37% year to date). Or the persistent rate hikes could do it. The Zacks #3 (Hold) rank on Tesla shares appears to support this strategy.
One-Month Price Performance
Image Source: Zacks Investment Research
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Should You Sell the Tesla Sales Miss?
Tesla (TSLA - Free Report) is the leading EV maker by far and the world is doubling down on EV adoption with government subsidies, policy changes and infrastructure buildup. This should be the perfect backdrop for solid growth into the foreseeable future, which is what CEO Elon Musk has talked about on the earnings call.
The competition is not sitting idle either because as Musk himself says, “We are still a very small percentage of the total vehicles on the road” and “We're about a long way to go to even reach 1% of the global fleet.” The scope for expansion is huge and there is obviously room to accommodate more than one player. Therefore, share erosion at Tesla is only to be expected even as its volumes grow.
According to elektrek which quotes registration data from Experian, Tesla currently accounts for 68% of registered electric vehicles in the U.S., one of the largest EV markets. That’s great, but it’s down from 79% at the end of 2020 and close to 70% at the end of 2021, as more players enter the market. But as the site points out, Tesla conceded a little over 1% of its revenue in the first half of this year to rivals, which grew their U.S. deliveries 58%. All four Tesla models were in the top 5, with only Ford’s (F - Free Report) Mustang Mach-E pushing into the third position. Being the first mover, Tesla has had the time to create its own fan base, which is just as well because the established players now taking share already have theirs.
As this analysis by Troy Teslike shows, Tesla’s international deliveries are gradually catching up with demand, as seen from the declining backlog, although some regions continue to see extended wait times. Musk explained on the call that the main problem is outbound logistics because production is typically backend loaded (“roughly two-thirds of our Q3 deliveries occurred in September and one-third in the final two weeks”). There simply aren’t enough ships from Shanghai to Europe or local trucking in parts of the U.S. and Europe to deal with this sudden burst in demand. This problem will take time to iron out, so the fourth quarter won’t be immune to it.
The delivery issue stems from more demand not less and so, should be viewed as a problem that is good to have. Especially since management is on it. The goal is to spread out builds to ease pressure at the end of the period and we may expect some improvement next year.
It is hard to view the above situation negatively. And it’s worth noting that Tesla also has an energy business that is expected to grow faster than its vehicles business, which Musk thinks will grow at 30% a year for the foreseeable future. And any recession that may happen next year will not have them taking down vehicle production. There is just so much demand out there.
Therefore, I would be the last person asking you to sell Tesla shares. If you’re concerned about valuation, you could sit on it, because valuation has fluctuated wildly, as the company gradually proved its business (and production) model. Although expensive at 47.71X P/E, it is the lowest level the shares have traded this year.
Tesla does have problems related to raw material procurement as well as the logistics problems discussed above. The strong U.S. dollar also doesn’t help a company that generates a significant percentage of sales overseas and does a significant amount of production within the country.
The recession could create the perfect opportunity to load up, as the shares could get beaten down further (they are down 37% year to date). Or the persistent rate hikes could do it. The Zacks #3 (Hold) rank on Tesla shares appears to support this strategy.
One-Month Price Performance
Image Source: Zacks Investment Research