Tesla Inc (NASDAQ: TSLA) has reduced the prices of some of its electric vehicles in the United States for the third time this month and the sixth time since the beginning of 2023.
Notably, the company has decreased the prices of its Model Y long-range, Model Y performance, and Model 3 rear-wheel drive vehicles by 5.6%, 5.2%, and 4.7%, respectively.
In addition to the price reductions in the United States, Tesla has been engaged in a price war in China and has consequently lowered prices for its vehicles in Singapore and Europe as well.
Over the past few quarters, the company has not met analysts' delivery expectations, which has prompted these price reductions in an effort to stimulate demand for Tesla's electric vehicles.
Tesla Q1 2023 Update
Tesla believes this year presents a unique opportunity for the company amid challenges faced by other automakers in their EV programs. Tesla aims to leverage its cost leadership by focusing on production growth, investments in autonomy and vehicle software. The company's pricing strategy considers long-term per-vehicle profitability, and its operating margins have reduced at a manageable rate despite price reductions. Tesla is expanding energy storage production capacity and executing its product roadmap with a strong balance sheet to support future capital expenditures. In this environment, pushing forward for a solid foundation is seen as a sensible approach.
TSLA Stock Progress
Tesla Inc's stock is trading at $180.59 as of close of play on April 19, 2023, and is up by 67% year-to-date (YTD). Over the past year, the stock is down by 45%, whilst the S&P 500 is down by 7%, meaning the stock has underperformed the market by approximately 38% over this period.
Is Tesla Inc a good investment? Let’s take a closer look and see what the numbers tell us.
Why are fundamentals important?
Fundamentals are a set of key metrics that, when looked at holistically, can tell us whether or not a company is likely to be a good investment over the long term. Investors have relied on fundamental analysis for decades to assess the financial health of an organization as well as its growth prospects.
On balance, stock prices are usually driven by a company’s financial performance over the long term, and it makes sense to analyze a company’s fundamentals in detail before deciding to invest.
There are a number of fundamental metrics to analyze, but we'll be focusing on the price-to-earnings ratio (P/E ratio), the price-to-book value (P/BV), price-to-sales ratio (P/S ratio), earnings per share (EPS) and debt.
With this in mind, let's take a look at Tesla Inc’s fundamentals and see if they can tell us anything about the company’s potential as an investment opportunity.
Tesla Inc's fundamentals
A good place to start is to look at Tesla Inc's EPS, which will tell us how profitable the company is on a 'per share' basis. This metric is calculated by taking a company's net income (after dividends on preferred stock) and dividing this by the number of outstanding shares.
Tesla Inc's EPS is 3.6 based on its most recent financials, and year-on-year, this grew by 122%, which is encouraging.
Analyzing a company's price-to-earnings (P/E) ratio is also helpful because it tells us how cheap or expensive a stock is or how much of a premium investors are willing to pay for its earnings. It is calculated by taking the price of a stock and dividing this by the EPS. A higher ratio suggests that the stock is expensive in relation to its earnings, and a lower ratio indicates the opposite.
TSLA has a P/E ratio of 49.9, based on its most recent financial statements. This is 70% higher than the average P/E ratio across its industry (which is 29.4) and indicates that the stock may be overvalued compared to companies in the same sector at present.
Next, let's look at the P/S ratio, which looks at a company's stock price compared to its sales (revenues). It is calculated as the current price divided by sales for the previous 12 months and is useful because it helps us understand how much investors are willing to pay for every dollar of a company's revenues. The consensus opinion is that stocks with a lower P/S ratio offer better value, and stocks with a very low P/S ratio are known as 'value stocks'. However, what is considered a 'high' or 'low' P/S Ratio is relative and can vary across different sectors, so the best way to objectively assess this is to compare a company against its industry peers.
Based on its most recent financial statements, Tesla Inc's P/S ratio is currently 7.7. Compared to the sector-wide average of 1.8, this is 340% higher, indicating that the stock may offer less value compared to other companies in the same sector.
Another key metric to look at is a company's price-to-book value (P/BV), which tells us how much investors are willing to pay for a company's assets. It is calculated by the company's stock price divided by its net assets (or 'book value', meaning the value of all assets which appear 'in its book'). P/BV is used by value investors to identify potential investments and a P/BV of 1 is usually considered a solid investment.
Tesla Inc's P/BV is 12.8 according to its most recent financials, which is higher than the industry benchmark of 3.2.
Finally, it's always worth looking at a company's debt profile before deciding to invest in order to assess the risk. A high amount of debt can be a problem if a company is not generating enough cash flow to service its debt, and some sectors rely on debt more heavily than others.
According to its most recent financial statements, Tesla Inc has total debt of $5.75bn, and this has gone down by 35% over the past year. The company also has cash & short-term investments totaling $22.48bn, giving it a 'net debt' of $-16731m.
Based on these figures, Tesla Inc's current levels of net debt don't worry us, as the company generates enough revenue to service its debt and is not using debt to fund its operations, which is good to see.
About Tesla
Tesla, Inc. engages in the design, development, manufacture, and sale of fully electric vehicles and energy generation and storage systems. The company operates through the following segments: Automotive and Energy Generation and Storage. The Automotive segment includes the design, development, manufacture, sale, and lease of electric vehicles as well as sales of automotive regulatory credits. The Energy Generation and Storage segment includes the design, manufacture, installation, sale, and lease of stationary energy storage products and solar energy systems and the sale of solar energy systems incentives. The company was founded by Jeffrey B. Straubel, Elon Reeve Musk, Martin Eberhard, and Marc Tarpenning on July 1, 2003, and is headquartered in Austin, TX.
Is Tesla Inc a Buy?
All in all, we’ve noticed some worrying trends at Tesla Inc.
To be more specific, the stock is down by 45% over the past year and is underperforming the broader market over the past year. Moreover, compared to companies in the same sector, TSLA has a higher P/E ratio, higher P/BV and higher P/S ratio. This just doesn't give us confidence that the company is on the right track.
All things considered, we're just not sure that Tesla Inc is doing enough to deserve a spot in your portfolio right now, but it may be worth adding to your watchlist to keep an eye on in the future.
As with any stock, however, there are additional factors to consider before making an investment decision. This analysis it general in nature and based on historical data, and it does not take into account your specific investment objectives or financial circumstances. Additionally, this article does not look at the macro environment where geopolitical headwinds, internal company changes and individual technicalities in the way a company conducts its business can have a significant impact on a company's long-term outlook. Please do your own due diligence before deciding to invest.
What's Next for Your Investment Portfolio?
To deepen your understanding and expand your investment strategies, consider exploring our investing guides on topics such as buying OTC and TSX stocks, finding investment opportunities, and the benefits of investing in gold.
