Investing in
Tesla
requires wits, nerves of steel, and a solid framework. That’s more true than ever in 2024.
We recommended buying Tesla stock in January 2023, arguing, in part, that declines linked to Elon Musk’s purchase of Twitter, now called X, and electric-vehicle price cuts were overdone. That turned out to be a good call. Coming into Friday trading, Tesla stock was up about 110% from that recommendation.
No one expected a double, but Tesla stock is one of the most volatile stocks in the market and led by an iconoclast. Shares rarely do what is expected. Being able to endure all that volatility is why nerves of steel are required. Now the question is whether to take the money and run or double down and bet on another big year.
The sell case is strong. Bernstein analyst Toni Sacconaghi, who called Tesla a short in a December report, points out that this year’s earnings estimates fell by half, even as the stock doubled last year—an odd situation he sees reversing. He predicts weakening demand, a result of the fact that Tesla has only two cars widely available to buy, the Model 3 and Model Y.
Analysts now expect 2.1 million vehicles to be sold this year, up less than 17% from 2023. That’s far short of Tesla’s goal to grow volume 50% a year on average. That growth bogey would have required Tesla to eventually sell 3 to 4 million Model 3 and Y vehicles a year, which is “completely unrealistic and unanchored in basic market sizing data,” says Sacconaghi, who has a Sell rating and a $150 price target on the stock.
But the bull case is also strong. Baird analyst Ben Kallo, who has a Buy rating on the stock, sees enough catalysts to drive Tesla’s shares to $300, up about 25% from Thursday’s close. They include a low-price model to help revive demand, a refreshed Model Y, falling raw material costs, and streamlined production. “We continue to view Tesla as the EV leader and recommend it as a core holding for our coverage,” Kallo writes.
Who’s right? Perhaps neither. Many years ago a fund manager—a Tesla bull—explained the way he managed his position. When shares were beaten up, he would buy more stock up to about 5% of his portfolio value. When shares were soaring, he’d sell his position down to 2%.
That seems sensible to us, and though we, too, are long-term Tesla bulls, we believe this is the time to be at the low end of the range. We already recommended selling up to half of our position in June, when the stock was trading above $250, leaving us with roughly our original stake. With shares still at similar levels, we see no reason to sell more.
Now, though, everything hinges on the Model 2. Last quarter, China’s
BYD
sold more battery electric cars than Tesla mainly by selling cheaper vehicles. Tesla has one coming—it has already announced plans for a lower-priced EV—but when the car will arrive is still a guess. Collecting orders in late 2024 and seeing them on roads in mid-to-late 2025 is a reasonable guess.
Until then, we’re content holding what’s left of our theoretical position. It rarely pays to bet against the market leader, even one as volatile as Tesla.
Write to Al Root at [email protected]
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