Tesla Stock Analysis 2024

Introduction

In recent years, few stocks have generated as much heat and debate as Tesla. Once soaring to astronomical heights, with a valuation surpassing that of the next 10 automakers combined, Tesla has since experienced a significant decline in its share price. Despite this, it remains the most highly valued automaker on the planet. Nevertheless, the burning question remains: Is Tesla truly deserving of the lofty price the market is willing to shell out for its shares? In this article, we will meticulously analyse Tesla company to see how good of an investment Tesla could be for the current market valuation. Additionally, we will delve into the rationale behind the current market valuation of the company, while also exploring potential future scenarios and their implications.

Company Overview

Tesla, an electric automotive company, was co-founded by Martin Eberhard and Marc Tarpenning in Palo Alto, California, in 2003, with the aim of developing sustainable transportation solutions through mass-market electric vehicles. Later, Elon Musk, the current CEO, also assumed the role of co-founder.

The company’s main focus lies in electric vehicles, but it is also actively engaged in energy generation and storage. Tesla gained recognition for its efforts in mainstreaming electric vehicles and providing reliable options for early adopters. The most popular Tesla car models are Model 3 and Model S. Furthermore, the most recently released Tesla’s pickup truck called Cybertruck has also received huge number of pre-orders. Additionally, Tesla operates an extensive EV charging network spanning North America, Europe, the Middle East, and the Asia Pacific region.

While Tesla’s primary markets are in China, North America, and Europe, it also maintains a presence in the Middle-East, Asia Pacific and Australia regions.

Tesla’s leadership team:

Elon Musk : Elon Musk holds bachelor’s degrees in physics and economics. He achieved early success with the company Zip2 and made a profitable investment in PayPal. Musk has demonstrated good engineering and physics knowledge, along with notable marketing and business acumen. Additionally, he has a significant social media following and influence.
Tom Zhu : Tom Zhu joined Tesla in April 2014 to lead its charging network development in China and became General Manager of Tesla in China by December. He now oversees Tesla’s APAC business and the construction of the Gigafactory in Shanghai. Before Tesla, he co-founded Kaibo Engineering Group Corp. and managed significant infrastructure projects in Africa. He also founded an engineering management consulting firm in 2013. Mr. Zhu holds a bachelor’s degree from Auckland University of Technology and an MBA from Duke University.
Vaibhav Taneja: Vaibhav Taneja, a Delhi University commerce graduate and certified public accountant, has 16 years of experience at PwC. He later worked at SolarCity, which was acquired by Tesla, and is now Tesla’s Chief Financial Officer.
Lars Moravy : As the head engineer and technical lead, he oversees the team responsible for designing and developing all Tesla vehicle hardware. His work encompasses projects such as Model S, Model X, Model 3, Model Y, Roadster, and Semi-truck. Before Tesla, he has worked for Honda as Senior Design Engineer.

Business Model

Tesla’s primary business focuses on the production and sale of premium and sub-premium electric vehicles, with a strong emphasis on sustainability and cutting-edge technology, especially in autonomous driving.
Targeting EV enthusiasts and tech aficionados, Tesla markets its products at premium prices, catering to consumers willing to pay above the market average.
Tesla operates on a direct-to-consumer (D2C) model, allowing direct engagement with end consumers and bypassing intermediaries like dealerships.
The company emphasizes vertical integration, manufacturing most car parts in-house, which enhances supply chain management and cost control.
Beyond vehicle sales, Tesla generates revenue from energy generation and storage solutions.
A significant portion of revenue also comes from regulatory credits, further bolstering Tesla’s financial standing.

Market Analysis

Tesla Market in the China

Tesla holds the top position in the Chinese market, closely rivaled by BYD. However, Tesla faces formidable competition in China from several companies, including Aito by Huawei, Changan (owned by the Chinese state), Wuling, and Li Auto. While Tesla still commands the majority of the market share, BYD has rapidly narrowed the gap and even temporarily surpassed Tesla in 2023.

The Chinese market is witnessing a rise in nationalistic sentiments, which could potentially work against Tesla. Moreover, in a market known for its price sensitivity, Tesla’s vehicles are relatively expensive. For instance, the cheapest Tesla model, the Model 3, sells for nearly $36,000 in China, whereas the BYD Seal, a sub-premium model, sells for approximately $25,000.

The ongoing geopolitical tensions between the United States and China also pose risks for Tesla’s operations in the future. However, the Chinese government is actively incentivizing electric vehicles (EVs) and implementing policies to promote their adoption and manufacturing.

Despite these challenges, Tesla enjoys a robust brand value, which serves as a significant advantage for the company in the Chinese market.

Tesla Market in the USA

The electric vehicle (EV) landscape in the US is becoming increasingly competitive, with traditional automakers such as Chevrolet, Ford, Volkswagen, Hyundai, Kia, BMW, and Mercedes making significant strides in the EV segment. Tesla may encounter challenges in establishing its audience in the US market moving forward, given that its EVs are notably more expensive than the budget-friendly alternatives introduced by traditional car manufacturers. Furthermore, luxury car brands are also entering the EV market segment. Tesla experienced a decline in market share from 65% in 2022 to 55% in 2023, indicating a shifting competitive landscape. As traditional car makers continue to offer competitive pricing, Tesla’s market share is likely to further decrease in the future.

Tesla Market in the Europe

In 2024, Tesla experienced notable success in Europe, driven by recent price reductions that stimulated demand for the Model Y. Both the Model 3 and Model Y emerged as top-selling electric vehicle (EV) models on the continent.

This report indicate that Tesla claimed the second position in EV sales in Europe, trailing only behind BMW. However, competition remains intense, with established brands like Mercedes, Audi, and Volvo also competing for market share.

Over recent years, EV sales in Europe have surged dramatically, surpassing 60% growth in the previous year alone. European automakers maintain a firm grip on market share, leveraging their extensive experience and robust distribution networks.

For Tesla, Europe represents a dual challenge: while it offers a mature market with affluent consumers keen on Tesla’s offerings, navigating stringent regulations, especially for models like the Cybertruck, presents hurdles. Additionally, Tesla’s self-driving technology faces obstacles in Europe, where regulatory approval may lag behind other regions.

Tesla Market in the Middle East, South East Asia, Australia

The electric vehicle (EV) market in the Middle East is experiencing rapid growth, set to nearly triple to 7.6 billion USD by 2028 from 2.7 billion USD in 2023, as per Deloitte’s report. Saudi Arabia is making substantial investments in the EV industry, with startups such as Lucid and Nio gaining traction. Established brands like BMW, Mercedes, and Volkswagen maintain popularity in the region. Tesla made its foray into the Middle East market in late 2023, and its trajectory in this market will be intriguing to observe. With its robust brand value and the Middle East’s inclination toward established brands, Tesla’s journey here holds promise.

Southeast Asia emerges as one of the swiftest developing regions globally. Fueled by a thriving economy, the populace is increasingly drawn to electric vehicles. Presently, the market size stands modest at approximately 1.5 billion USD (according to this report), yet poised for rapid expansion in the near future. Notably, Chinese brands wield significant influence in this area, potentially posing challenges for Tesla to carve its niche in this market.

The Australian electric vehicle (EV) market is experiencing a surge, with sales soaring by over 100% in recent years, as outlined in this report. Tesla’s Model 3 and Model Y lead as the top-selling EVs in the region, solidifying Tesla’s dominance. Nevertheless, competition is intensifying, notably with BYD emerging as the third-highest seller in the market. Despite this, Tesla maintains a robust market share and remains the preferred choice over other brands. Moreover, the Australian government is actively endorsing the EV industry to align with its 2050 net-zero emission plan.

Financial Analysis

Revenue & Gross Profit

Over the past year, revenue has remained stagnant, showing no growth. Specifically, in Q1 2024, it decreased by 15%, dropping from 25.1 billion USD to 21.3 billion USD. Consequently, gross profit also experienced a corresponding 15% decline during this period. Several major factors have contributed to this revenue decline:

Weakening demand for electric vehicles (EVs) (Further details provided in a later section).
Escalating competition in key markets such as China, the US, Europe, and others (Further details provided in a later section).
The off-season for car sales in the largest market, China, owing to the celebration of Chinese New Year.

Tesla’s Revenue and Gross Profit in last 9 quarters (in millions USD)

Period (Quarters)	Revenue	Gross Profit
Q1 2022	18,756	5,460
Q2 2022	16,934	4,234
Q3 2022	21,454	5,382
Q4 2022	24,318	5,777
Q1 2023	23,329	4,511
Q2 2023	24,927	4,533
Q3 2023	23,350	4178
Q4 2023	25,167	4,438
Q1 2024	21,301	3,696

Tesla's Revenue and Gross Profit

in millions (USD)

Operating Expenses, Capital Expenditure & Net Income

Operating Expenses have been consistently increasing. For past 4 quarters the operating expenses have been +15% in Q2 23, +13% in Q3 23, -1.6% in Q4 23, +6% in Q1 24. Operating expenses have increased primarily due to the following reasons :

Research and Development: This encompasses the creation of new models such as the Tesla CyberTruck and the advancement of technologies like Full Self-Driving. Tesla has announced its intention to significantly increase capital expenditure, attributing mainly to AI.
Selling, General and Admin Expenses : Tesla’s Selling, General and Admin expenses have been constantly increasing.

Capital expenditure has been increasing rapidly. Capital expenditure was 2.0 billion, 2.4billion, 2.3billion and 2.7 billion USD in Q2 23, Q3 23, Q4 23 and Q1 24 respectively. Increase in Capex is caused by following main reasons.

Setting up manufacturing Units (Capital Expenditure): Tesla’s vehicles, such as the Cybertruck, require specialized manufacturing infrastructure. Tesla has made substantial investments in constructing factories globally, including facilities in Nevada, Shanghai, Berlin, and Texas.
Setting up charging stations and energy storage solutions (Capital Expenditure): Tesla’s rapid charging network forms the cornerstone of their vehicles’ dependable charging capability. Additionally, Tesla’s energy generation and storage solutions contribute significantly to the company’s revenue stream.

Net Income has been consistently decreasing for the past year due to an increase in operating expenses and stagnating revenue. An increase in operating expenses is not leading to an increase in revenue which is quite concerning for the company.

Tesla’s Operating Expense, Capital Expenditure and Net Income in last 9 quarters (in millions USD)

Period (Quarters)	Operating Expense	Capital Expenditure	Net Income
Q1 2022	1857	1767	3280
Q2 2022	1770	1730	2269
Q3 2022	1694	1803	3331
Q4 2022	1876	1858	3707
Q1 2023	1847	2072	2539
Q2 2023	2134	2060	2614
Q3 2023	2414	2460	1878
Q4 2023	2374	2306	7943
Q1 2024	2525	2773	1144

Tesla's Operating Expense, Capital Expenditure and Net Income

in millions (USD)

Asset Turnover Ratio and Inventory Turnover Ratio

The asset turnover ratio has been consistently declining over the past year, indicating that Tesla has struggled to utilize its assets efficiently. This inefficiency suggests that resources are either misplaced or underutilized due to various factors. Despite substantial investments in manufacturing facilities, Tesla has not met the high demand for the Cybertruck. In Q1, Tesla delivered fewer than 4,000 Cybertrucks, significantly below the initial estimate of 10,000. Scaling up Cybertruck production remains a challenge despite the heavy investment in manufacturing infrastructure.

The inventory turnover ratio also showed a sharp decline in Q1 2024, reversing the consistent improvement seen over the last year. This decline points to a slowdown in demand for Tesla’s best-selling models, such as the Model 3 and Model Y. Overall vehicle deliveries slowed in Q1 2024. Several factors contribute to this trend:

Tesla relies more on company-owned stores and a direct-to-consumer (D2C) model compared to other automakers. This approach leads to higher inventory levels since Tesla cannot sell inventory in advance to third-party distributors.
Demand for popular models like the Model 3 and Model Y has decreased. CEO Elon Musk acknowledged this by announcing price cuts to stimulate demand. Tesla’s cars are expensive, and consumers are opting for cheaper electric vehicle alternatives from other brands.
Flexible pricing makes consumers hesitant to purchase at regular prices, anticipating future price drops. Frequent price cuts and fluctuations may lead to consumers delaying their purchases or choosing another brand, fearing faster depreciation when prices are reduced for newer models.

Tesla’s Asset Turnover Ratio and Inventory Turnover Ratio in last 9 quarters

Period (Quarters)	Asset Turnover Ratio	Inventory Turnover Ratio
Q1 2022	0.28	1.98
Q2 2022	0.24	1.56
Q3 2022	0.28	1.55
Q4 2022	0.29	1.44
Q1 2023	0.26	1.30
Q2 2023	0.27	1.42
Q3 2023	0.25	1.39
Q4 2023	0.23	1.52
Q1 2024	0.19	1.09

Tesla's Asset Turnover Ratio and Inventory Turnover Ratio

Debt to Equity Ratio and Cashflow to Debt ratio

Tesla boasts one of the strongest debt-to-equity ratios among manufacturing companies. In Q1 2024, this ratio was 0.08, indicating efficient capital utilization and minimal reliance on external borrowing. This contributes to Tesla’s robust cash position, enabling the company to raise additional funds in the debt market if needed.

Tesla also demonstrates an excellent cash flow to debt ratio. Over the past year, the quarterly cash flow to debt ratio has been nearly 1, meaning Tesla could pay off its entire debt with just one quarter’s operating cash flow. However, in the last quarter, this ratio dropped to 0.05. The balance sheet shows that cash and cash equivalents stand at $26 billion, almost five times the total debt of $5.3 billion. Thus, it is clear that Tesla is in a very strong cash position.

Tesla’s Debt to Equity Ratio and Cashflow to Debt Ratio in last 9 quarters

Period (Quarters)	Debt to Equity Ratio	Quarterly Cashflow to Debt Ratio
Q1 2022	0.14	0.83
Q2 2022	0.12	0.53
Q3 2022	0.09	1.44
Q4 2022	0.07	1.06
Q1 2023	0.06	0.94
Q2 2023	0.05	1.31
Q3 2023	0.08	0.75
Q4 2023	0.08	0.84
Q1 2024	0.08	0.05

Tesla's Debt to Equity Ratio and Quarterly Cashflow to Debt Ratio

Tesla SWOT Analysis

Strengths

Strong Brand Value

The Tesla brand holds remarkable strength across all its markets, enjoying international recognition and widespread popularity. It is synonymous with cutting-edge technology, innovation, and leadership in self-driving advancements and electric vehicles. Elon Musk’s prominent social media presence has played a pivotal role in shaping and reinforcing the Tesla brand.

Strong Cash Position

Tesla maintains a substantial cash reserve. Despite a recent weak operating cash flow in Q1 2024 at $242 million USD, historically, Tesla has consistently demonstrated strong operating cash flow. Presently, its balance sheet reveals $26.8 billion USD in cash and cash equivalents, sufficient to cover capital and operating expenses for over a year even without income. Notably, Tesla’s Cash to Debt ratio has hovered around 1 for the past year, indicating its capability to handle short-term liabilities with available cash. Moreover, the low debt-to-equity ratio suggests Tesla’s capacity to secure additional debt for future investments. In conclusion, Tesla’s ample funds position it strongly for robust investments in the future.

Reliable and extensive Charging network in the USA

Tesla boasts the most reliable and extensive charging network in the USA. Their ownership and design of both car and charging station hardware and software ensure a seamless charging experience, unmatched by other automakers. Replicating this experience presents a significant challenge for competitors.

Vertical Integration

Unlike other automakers who typically source components from vendors, Tesla largely owns its supply chain and component manufacturers. This provides Tesla with a significant advantage, granting greater control over costs, quality, and the supply of raw materials. Additionally, it offers an extra layer of protection against disruptions in the raw material supply chain from external factors.

EV push by the major economies

Leading economies worldwide are actively encouraging the adoption of electric vehicles (EVs) over traditional gas-powered vehicles. In key markets like China, the US, and Europe, substantial subsidies are in place for EVs, effectively boosting consumer demand. Tesla benefits from these incentives, which contribute to the company’s ability to maintain high margins on its products. In the recent years, more than 90% of of light EV’s were subsidised worldwide. Governments around the world are focusing on boosting EV manufacturing as well, not just deployment. Read full report on EV Policies here.

The Most Popular Autonomous Driving Technology

While Tesla may not be the forefront in technological advancements in self-driving technology, it holds the distinction of having the most widespread adoption globally. Its early market entry and strong brand identity as innovators have positioned Tesla as a leader in the public perception of autonomous driving technology.

Tesla Sets the Industry Standard for Software Experience

Tesla surpasses traditional automakers by a significant margin in terms of car software experience. Unlike traditional automakers, which often struggle to deliver user-friendly software interfaces, Tesla, as a newer company, has demonstrated greater agility in seamlessly integrating software and hardware within its vehicles.

Enormous Pre-order Demand

Tesla has garnered an immense number of pre-orders for its car models such as the Cybertruck and Tesla Roadster. Notably, the Cybertruck alone surpassed 2 million pre-orders by 2023. The significant number of pre-orders underscores Tesla’s popularity, with numerous individuals willing to place deposits on pre-orders years in advance. If Tesla fulfills its delivery promises, these pre-orders have the potential to translate into substantial revenue for the company.

Weaknesses

Dependence on High-Demand Models with Limited Diversification

Tesla’s revenue heavily relies on its top-selling models like the Model Y and Model 3, raising concerns about dependency. Recent sales declines in these models notably impacted the company’s revenue. Despite high demand, Tesla faced challenges in mass-producing its new model, the Cybertruck. Furthermore, with over 85% of revenue from electric vehicle (EV) sales, the company is vulnerable to fluctuations in EV demand, posing a substantial risk to its overall revenue.

Decreasing Operating Margins

In the past year, Tesla’s operating margins have experienced a consistent decrease, hitting a record low of 5.5% in Q1 2024. This decline is primarily due to heightened price competition in key markets. In response to this pressure and to enhance market share, Tesla has enacted price reductions aimed at boosting demand.

High R&D expense

Tesla’s investment in research and development (R&D) has been substantial, with R&D costs exceeding $1 billion USD per quarter in recent quarters. A significant portion of these expenses is dedicated to developing AI capabilities for self-driving technology. However, despite these efforts, Tesla’s self-driving technology has fallen behind competitors in the race. This Report on self driving technology suggest that achieving level 5 self-driving capabilities may not be feasible until 2035. If these estimates hold true, Tesla’s significant investment in AI development could prove to be costly over the long term.

High Capital Expenditure

Despite Tesla’s heavy investments in establishing manufacturing units worldwide, the expected reduction in production costs has not materialized due to insufficient economies of scale. Moreover, despite a significant number of pre-orders, the company has struggled to deliver its latest models such as the CyberTruck, while inventory for older models like the Model 3 and Model Y continues to accumulate. This represents a significant weakness, indicating a misallocation of capital expenditure in previous quarters.

Poor Build Quality

Tesla’s cars have gained notoriety for their subpar build quality. Tesla reported an average of over 242 problems per 100 vehicles, significantly exceeding the industry average. Read more on Tesla’s build quality here. This poor build quality can be attributed to:

Lack of experience in manufacturing cars.
Rushed production lines and inadequate quality control measures.

Manufacturing Challenges

Tesla has encountered numerous manufacturing challenges over the past year, including supply chain disruptions, worker protests at the Berlin Gigafactory, and environmental issues. Tesla has failed multiple times in delivering the product on time and having abnormally long delays. Additionally, Tesla’s efforts to automate the manufacturing process extensively have not been as successful as anticipated, as acknowledged by CEO Elon Musk. Furthermore, Tesla faces significant manufacturing hurdles with its latest model, the Cybertruck, due to the need for a new process to manufacture its full steel body exterior.

Unpredictable Relentless Socially active CEO

Tesla CEO Elon Musk has been highly engaged on his platform X, formerly known as Twitter. Known for his unfiltered tweets and controversial statements, Musk’s online presence has had an impact on the brand image in recent years. This could potentially lead to severe problems in the future, given that Tesla’s brand is one of the company’s most crucial assets.

Delays and Unkept Promises

Tesla is increasingly gaining notoriety for significantly long delays and failure to deliver on what they initially announce during product presentations. For instance, it took the company four years to deliver a limited number of Cybertrucks, which were initially announced in 2019. Additionally, the Tesla Roadster has not entered production, and there are no current plans for its delivery. Similarly, despite promises of full production by 2019, only 100 Tesla Semis were delivered to Pepsico, with no further updates on production. Elon Musk has continuously announced full self-driving capabilities for their cars for the past decade without any significant releases. These repeated delays and unfulfilled promises are eroding trust in the company’s word, leading to growing impatience among consumers.

Opportunities

Scope of addressing affordable EV market

Tesla has maintained a premium car brand status since its establishment. However, as electric vehicle (EV) adoption increases, EVs are becoming increasingly affordable for middle-class consumers across various markets. With its strong brand and key technologies like Full Self-Driving (FSD), Tesla could appeal strongly to these consumers by introducing a new affordable EV to the market. Although Tesla has teased the idea of an affordable EV multiple times in the past and suspended the plan due to intense competition, the company could reconsider this strategy to expand its market share in growing markets.

Expanding to new Geographical Markets

Tesla’s current market presence is limited, despite its coverage of major economies worldwide, including North America, Europe, the Middle East, Southeast Asia, and New Zealand. However, significant opportunities remain in countries such as India, Africa, and South America, where Tesla has yet to establish a strong foothold.

Opportunities in Battery and Component Sales

Tesla has invested significantly in research and manufacturing facilities for batteries and other components. This vertical integration approach not only boosts their self-reliance but also opens up opportunities to supply these components to other automotive manufacturers.

Full Self Driving Technology

As Tesla continues its progress towards achieving level 4-5 autonomy, significant promise and potential remain. This advancement has the potential to significantly increase revenue for both the company and its customers. Notably, Tesla’s exclusive use of camera-based technology to achieve autonomous driving could position it to potentially license this innovation to other automakers once it becomes a robust offering.

Tesla Charging Network Monopoly

The Tesla Charging network stands out as one of the most comprehensive and dependable charging networks in the USA. Additionally, Tesla’s complete control over both charger and car hardware simplifies the process of creating a seamless experience with software. This advantage positions Tesla to potentially achieve complete dominance and monopoly over hardware in the electric vehicle market.

Threats

Weakening Demand for EVs

Electric vehicle (EV) sales are experiencing a decline while hybrid vehicles are gaining popularity. Several factors contribute to this trend:

Cost: EVs are more expensive to produce due to costly components like batteries. See the complete breakdown of EV cost here. Research and development efforts to enhance charging speed, battery range, and self-driving technology further add to production expenses.
Depreciation: Depreciation is a concern amon consumers in EV adoption according to this news article. According to this research on EV Depreciation EVs depreciate faster and have lower resale value compared to internal combustion engine vehicles. Rapid advancements in EV technology and price wars among companies contribute to aggressive depreciation rates. However, Tesla’s cars have been somewhat successful in retaining their value compared with other EVs according to this article.
Charging Infrastructure: User anxiety regarding charging infrastructure is a significant concern. EV charging points are fewer in number and less reliable than traditional gas stations, leading to inconvenience and distrust among users.
Charging Time: Charging an EV takes longer than refuelling a gas-powered vehicle, which is perceived as inconvenient in today’s fast-paced lifestyle.
Environmental Impact: Despite being marketed as environmentally friendly, EVs still face criticism for their reliance on conventional fuel-based electricity generation and the environmental impact of battery production. This article further examines how green the EVs are.

Growing Competition

Tesla is encountering intense competition in its key markets. Although it previously held a monopoly, recent years have seen increased competition from both traditional automakers and new EV companies. This has already adversely affected Tesla’s margins and revenue. Looking ahead, the growing competition could further erode the company’s market share.

Autonomous Driving Technology Still Falls Short

Tesla has placed significant emphasis on its self-driving technology, with its Full Self-Driving (FSD) system being one of the most widely adopted in the market. However, several critical points must be considered:

Limited Reliability: Although FSD is efficient in most scenarios, it is not reliable for road use. Tesla requires drivers to keep their hands on the steering wheel, classifying it as a Level 2 autonomy system. This significantly diminishes the practical utility of the FSD system.
Aggressive Approach: Tesla’s aggressive approach to full self-driving technology includes maintaining Level 2 classification and requiring users to hold the steering wheel, thus placing the liability for accidents on the driver. This is very dangerous for public safety and can cause severe problems for Tesla and its consumers.
Alternative Approaches: Other manufacturers, such as GM, Ford, and Mercedes, adopt a different approach by offering reliable hands-free solutions that work in limited environments comparing with Tesla’s unreliable all time “hand on steering” solution. While these systems offer less flexibility than Tesla’s, they provide more dependable performance.
Higher-Level Autonomy: Companies like Waymo and Cruise offer Level 4 autonomous vehicles in specific, mapped areas. Although Waymo’s approach is less scalable, it is more reliable. These vehicles have been approved for public use in some US cities with less stringent pedestrian safety regulations.
Competitive Landscape: Other manufacturers are rapidly catching up. Systems like GM’s Super Cruise, Ford’s Co-Pilot360, Mercedes’ Drive Pilot, and Hyundai’s Smart Sense are all comparable to Tesla’s FSD. Considering the advancements likely to be made in the near future, Tesla’s competitive advantage in self-driving technology may not be sustainable.
Regulatory Challenges: Achieving higher levels of autonomy involves overcoming significant legal and moral regulatory hurdles, indicating that fully autonomous driving still has a long way to go.

These factors suggest that while Tesla’s self-driving technology is advanced, it faces substantial competition and challenges in achieving true autonomous driving.

The China Threat

U.S.-China relations have been strained over the past five years. Further deterioration could negatively impact companies operating in both markets. Tesla is particularly at risk since China is its largest market. Additionally, rising nationalistic sentiments in China are leading consumers to prefer local brands over international ones. If this trend persists, local automakers like BYD will likely continue to erode Tesla’s market share in China.

Rare Earth Material Problem

Rare earth materials like lithium are crucial for companies like Tesla, where batteries are a primary component of their products. This article highlights the scarcity of lithium deposits, which may not be able to sustain the growing demand for EV batteries. As a result, any form of scarcity, restriction, or regulation could pose a significant risk to the company’s production capabilities.

Unhinged CEO

Tesla’s CEO, Elon Musk, is known for his outspoken nature and tendency to share controversial opinions on social media platforms like X (formerly Twitter). Musk’s controversial statements have previously resulted in significant consequences, including his decision to purchase Twitter at a high valuation. To finance this acquisition, Musk sold shares of Tesla, therefore impacting Tesla stock prices for his personal endeavours.

Tesla's Peer analysis

Over the past four years, Tesla has rapidly expanded in the automotive industry, a sector typically known for its slow growth. This rapid expansion justified its high valuation. However, recent comparisons show that Toyota has followed a similar growth trajectory, even surpassing Tesla in recent quarters. Toyota currently trades at a forward P/E of around 10, whereas Tesla’s forward P/E is approximately 50. Additionally, Tesla’s once extraordinary growth has plateaued, now resembling the patterns of traditional automakers. This shift may indicate the end of Tesla’s exceptional growth phase. As Tesla’s revenue scale approaches that of established automakers, it suggests an impending slowdown in growth toward an equilibrium point that all automakers eventually reach.

Tesla and its peers revenue in last 5 years (in billion USD)

Year	Tesla	Toyota	Ford	Mercedes	Hyundai
2019	24.5	192.6	155.9	172.7	78.1
2020	31.5	175.5	127.1	154.3	75.8
2021	53.8	202.4	136.3	133.8	85.7
2022	81.4	239.7	158.0	150.0	103.6
2023	96.7	290.9	176.1	153.2	118.6

Tesla and its peers revenue in last 5 years

(in billion USD)

As evident from the revenue growth, Tesla no longer exhibits the rapid expansion it did in its earlier days, making its current extraordinarily high valuation difficult to justify. The line graph shows Tesla’s growth trajectory beginning to resemble that of traditional automakers. Additionally, Tesla’s revenue scale is now comparable to other automakers, suggesting that future growth may not match its previous pace.

Stock Price Forecast using multiple method.

This analysis will consider three scenarios. The Bull Case scenario will investigate optimistic situations for Tesla’s earnings growth and PE ratio, influenced by positive market sentiment. The Neutral Case will focus on a scenario of steady, neutral earnings growth. Lastly, the Bear Case will explore potential challenges Tesla might face over the next five years and their potential impact.

Given the underwhelming performance in Q1 of 2024 and a slowing EV market, it would be optimistic to expect a 20% increase in earnings for the year. A more realistic estimate would be a 5% growth, with a potential 5% decrease in a bearish scenario.

Following the growth trends outlined in this report, a similar pattern is anticipated for 2025, with a best-case scenario of 20% growth, a base case of 5% growth, and a bearish scenario of a 5% decrease.

However, in 2026, growth is likely to moderate slightly due to increased competition and the shift of major automakers toward EV production to comply with regional regulations. Therefore, projecting a 15% growth for Tesla in 2026 would be optimistic, with a base case of 0% growth and a bearish case of a 10% decrease.

In 2027, electric vehicle sales are expected to rise further, especially with the introduction of new budget models from Tesla. The best-case scenario would see a 20% growth in earnings, while the base case would be a 10% increase and the bear case would see earnings remaining flat.

By 2028, the EV market is expected to be significantly developed, with improved charging infrastructure and government incentives driving growth. Major auto manufacturers are likely to have entered the market by then, aligning with regulations. In this context, a best-case scenario for Tesla would involve a 25% earnings growth, with a base case of 15% growth and a bear case of 5%.

Bull Case

Year	Earnings Growth	Expected PE	Stock Price
2024	20%	40	163
2025	20%	35	171
2026	15%	30	169
2027	15%	25	162
2028	25%	25	202

Tesla Bull Case Price Forecast

Bear Case

Year	Earnings Growth	Expected PE	Stock Price
2024	-5%	30	97
2025	0%	20	65
2026	8%	15	52
2027	6%	10	37
2028	5%	7	27

Tesla Bear Case Price Forecast

Neutral Case

Year	Earnings Growth	Expected PE	Stock Price
2024	5%	35	125
2025	10%	30	118
2026	12%	25	110
2027	12%	20	99
2028	12%	15	83

Tesla Neutral Case Price Forecast

Conclusion

Tesla is poised to face several challenging years ahead. While it would be remarkable for Tesla to overcome these obstacles and achieve growth comparable to its early years, the current conditions do not seem favorable enough to justify investment at its current valuation. It would be prudent to monitor the upcoming quarters and reconsider investing in Tesla if the company achieves a significant market breakthrough.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Always consult with a qualified financial advisor before making any investment decisions.