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As Tesla's China EV Sales Spike, Should You Buy TSLA Stock Now?
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Electric vehicle (EV) giant Tesla (TSLA - Free Report) is making headlines with its impressive sales performance in China, with August turning out to be its best sales month of the year in the country. According to the China Passenger Car Association, Tesla’s China-made EVs saw a 17% increase in sales from July and a 3% rise compared to the same period last year. With 86,697 vehicles sold in August, including those exported to overseas markets, Tesla's momentum in China picked pace. But does this surge make TSLA stock a buy at this juncture? Let’s delve into the factors that could influence your investment decision.
Tesla’s Strong Sales in China
China is a key market for Tesla, with its Shanghai Gigafactory producing the Model 3 sedan and Model Y crossover. The 17% month-over-month growth in August sales reflects Tesla's resilience in a competitive market.
This growth can be attributed to several factors, including strategic price cuts and attractive incentives like interest-free loans. In April, Tesla introduced a financing plan offering a zero-interest loan for up to five years, targeting budget-conscious consumers amid China’s sluggish economic environment. Moreover, Tesla's inclusion as an official government car in the Jiangsu province — marking the first time a foreign-owned EV brand has achieved this status — highlights the company’s strengthening ties with Chinese authorities.
While Tesla gained some market share in August, local players like Li Auto (LI - Free Report) and NIO Inc. (NIO - Free Report) experienced month-over-month declines in deliveries in August. Meanwhile, BYD Co Ltd (BYDDY - Free Report) , a major player in the China EV market, reported a 35% surge in sales, setting a new monthly record with 370,854 vehicles sold.
Investor Considerations for Tesla
Before making a move on Tesla shares, here are a few key factors worth noting that could impact the stock's future performance.
For starters, Tesla's automotive gross margins have been under pressure due to high production costs and aggressive pricing strategies. In the last reported quarter, the company's automotive gross margins (excluding regulatory credits) dropped to 14.6%, the lowest level in five years. This decline is expected to persist as Tesla continues to cut prices to maintain its competitive edge. Our projections indicate that Tesla's automotive unit gross margins, including regulatory credits, will average around 18.4% in 2024, down from 19.4% in 2023.
Additionally, Tesla has signaled that its vehicle volume growth rate for 2024 will be noticeably lower than in the previous year. Intensifying competition, particularly in the United States, where Tesla's market share has dropped from 63% in 2022 to around 50% currently, is another matter of concern.
However, there are bright spots as well. Tesla's Energy Generation and Storage business is emerging as a significant growth driver. This segment boasts the highest margins within the company. Energy storage deployments have witnessed a compound annual growth rate of 120.7% over the past three years. With the Megapack factory ramping up production to meet increasing demand, we expect energy storage deployments to double in 2024.
Tesla’s deepening focus on artificial intelligence (AI) and autonomous driving technologies is also keeping its fans excited. The company’s humanoid robot project (Optimus) and Full Self-Driving Beta software (V12.5) rollout are worth noting. Tesla plans to showcase its robotaxi or Cybercab in October, with production expected to begin next year. By 2025, Tesla also aims to produce several thousand Optimus robots for internal use.
CEO Elon Musk’s commitment to autonomy is clear, "If somebody doesn't believe Tesla is going to solve autonomy," he said, "they should not be an investor in the company." This emphasis on AI and autonomous driving could be transformative for Tesla.
How Should You Play TSLA Stock Now?
Tesla shares have declined roughly 15% so far this year, underperforming the industry, sector and S&P 500. Since reaching 2024 highs in July, TSLA shares have declined more than 20%, largely due to a sharp drop in second-quarter earnings, which fell over 40%.
YTD Price Performance
Image Source: Zacks Investment Research
Tesla also seems a lot overvalued at current levels. TSLA shares currently trade at 6.21X forward sales, way higher than the industry. It carries a Value Score of F.
Image Source: Zacks Investment Research
Additionally, EPS estimates for Tesla have been revised downward over the past 60 days, reflecting concerns about the company’s near-term profitability.
Image Source: Zacks Investment Research
As Tesla gears up for its much-anticipated robotaxi event and unveils its latest strategies and products, investors might want to adopt a cautious approach. While Tesla's focus on AI and autonomy holds promise, the stock’s current valuation appears to be too stretched, given the ongoing challenges in the automotive segment.
We think investors should wait for more pullback in the stock price before investing in TSLA. Its bold promises are exciting, but the execution of these ambitions will be crucial in determining the company's long-term success.
Image: Bigstock
As Tesla's China EV Sales Spike, Should You Buy TSLA Stock Now?
Electric vehicle (EV) giant Tesla (TSLA - Free Report) is making headlines with its impressive sales performance in China, with August turning out to be its best sales month of the year in the country. According to the China Passenger Car Association, Tesla’s China-made EVs saw a 17% increase in sales from July and a 3% rise compared to the same period last year. With 86,697 vehicles sold in August, including those exported to overseas markets, Tesla's momentum in China picked pace. But does this surge make TSLA stock a buy at this juncture? Let’s delve into the factors that could influence your investment decision.
Tesla’s Strong Sales in China
China is a key market for Tesla, with its Shanghai Gigafactory producing the Model 3 sedan and Model Y crossover. The 17% month-over-month growth in August sales reflects Tesla's resilience in a competitive market.
This growth can be attributed to several factors, including strategic price cuts and attractive incentives like interest-free loans. In April, Tesla introduced a financing plan offering a zero-interest loan for up to five years, targeting budget-conscious consumers amid China’s sluggish economic environment. Moreover, Tesla's inclusion as an official government car in the Jiangsu province — marking the first time a foreign-owned EV brand has achieved this status — highlights the company’s strengthening ties with Chinese authorities.
While Tesla gained some market share in August, local players like Li Auto (LI - Free Report) and NIO Inc. (NIO - Free Report) experienced month-over-month declines in deliveries in August. Meanwhile, BYD Co Ltd (BYDDY - Free Report) , a major player in the China EV market, reported a 35% surge in sales, setting a new monthly record with 370,854 vehicles sold.
Investor Considerations for Tesla
Before making a move on Tesla shares, here are a few key factors worth noting that could impact the stock's future performance.
For starters, Tesla's automotive gross margins have been under pressure due to high production costs and aggressive pricing strategies. In the last reported quarter, the company's automotive gross margins (excluding regulatory credits) dropped to 14.6%, the lowest level in five years. This decline is expected to persist as Tesla continues to cut prices to maintain its competitive edge. Our projections indicate that Tesla's automotive unit gross margins, including regulatory credits, will average around 18.4% in 2024, down from 19.4% in 2023.
Additionally, Tesla has signaled that its vehicle volume growth rate for 2024 will be noticeably lower than in the previous year. Intensifying competition, particularly in the United States, where Tesla's market share has dropped from 63% in 2022 to around 50% currently, is another matter of concern.
However, there are bright spots as well. Tesla's Energy Generation and Storage business is emerging as a significant growth driver. This segment boasts the highest margins within the company. Energy storage deployments have witnessed a compound annual growth rate of 120.7% over the past three years. With the Megapack factory ramping up production to meet increasing demand, we expect energy storage deployments to double in 2024.
Tesla’s deepening focus on artificial intelligence (AI) and autonomous driving technologies is also keeping its fans excited. The company’s humanoid robot project (Optimus) and Full Self-Driving Beta software (V12.5) rollout are worth noting. Tesla plans to showcase its robotaxi or Cybercab in October, with production expected to begin next year. By 2025, Tesla also aims to produce several thousand Optimus robots for internal use.
CEO Elon Musk’s commitment to autonomy is clear, "If somebody doesn't believe Tesla is going to solve autonomy," he said, "they should not be an investor in the company." This emphasis on AI and autonomous driving could be transformative for Tesla.
How Should You Play TSLA Stock Now?
Tesla shares have declined roughly 15% so far this year, underperforming the industry, sector and S&P 500. Since reaching 2024 highs in July, TSLA shares have declined more than 20%, largely due to a sharp drop in second-quarter earnings, which fell over 40%.
YTD Price Performance
Tesla also seems a lot overvalued at current levels. TSLA shares currently trade at 6.21X forward sales, way higher than the industry. It carries a Value Score of F.
Image Source: Zacks Investment Research
Additionally, EPS estimates for Tesla have been revised downward over the past 60 days, reflecting concerns about the company’s near-term profitability.
Image Source: Zacks Investment Research
As Tesla gears up for its much-anticipated robotaxi event and unveils its latest strategies and products, investors might want to adopt a cautious approach. While Tesla's focus on AI and autonomy holds promise, the stock’s current valuation appears to be too stretched, given the ongoing challenges in the automotive segment.
We think investors should wait for more pullback in the stock price before investing in TSLA. Its bold promises are exciting, but the execution of these ambitions will be crucial in determining the company's long-term success.
Tesla currently carries a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.