Without a doubt, Tesla Inc.'s (TSLA, Financial) meteoric rise has been nothing short of breathtaking. Its stock is up almost 30% in the past month, enough to make even the most stoic investor break into a smile. Yet, avoiding getting swept up in the exhilarating tide of gains is imperative. Hence, investors find themselves in a conundrum over whether to ride the wave or step back and reassess.
Indeed, the dazzling visions put forth by Elon Musk and Catherine Wood (Trades, Portfolio), centered on Tesla's autonomous driving abilities to the Cybertruck, command attention. Nevertheless, it is critical to firmly ground one's investment decisions in the reality of the company's products.
So as we bask in the glow of Tesla's monstrous success of late, it is imperative to review the company's valuation and underlying business. Are its fundamentals as robust as the stock's performance suggests? Moreover, how much weight can we throw behind its massive energy business, which is poised to become a major long-term catalyst?
This decision could be a deciding factor for investors contemplating whether to pocket some profits or hold on for the ride. Let's delve deeper into the Tesla story to put things in perspective.
Assessing Tesla's energy business
Tesla's relentless pursuit of innovation in the burgeoning energy storage sphere is hard to ignore. The latest feather in its cap, the Megapack configurator, flaunts a groundbreaking 3.9 megawatt hour capacity, a 50% surge in energy storage compared to its predecessor. Moreover, the company's prowess is not limited to energy storage systems. It goes a step further, providing a comprehensive, integrated solution that encompasses not only the Megapack, but also solar panels and charging infrastructure.
Strategic alliances with some of the biggest names in the automotive and electric vehicle charging spaces, including Rivian (RIVN, Financial), General Motors (GM, Financial), ChargePoint Holdings (CHPT, Financial) and others, have effectively strengthened its position. These collaborations have led to the growing adoption of Tesla's charging standard, solidifying its dominance in what could be a major long-term catalyst.
Despite the looming shadow of Chinese energy companies, Tesla's strategic partnerships have effectively cemented its role in setting energy standards.
Another positive for Tesla is its growing prominence in the Chinese market. In fact, sales in China outpaced those in the U.S. and Europe in its first quarter, underscoring the country's as its largest market. Despite the Model Y's price tag, Chinese consumers' willingness to invest in Tesla paints a picture of a massive market. Musk's strategic decision to set up a factory in China will likely be a game-changer for the company's global growth, offering a competitive edge by leveraging the country's expansive consumer base and cost-effective labor.
Multiple analyst downgrades
Tesla recently found itself on the receiving end of multiple analyst downgrades. Long-time Tesla bull Adam Jonas of Morgan Stanley surprised the markets by altering his stance from "buy" to "hold," citing valuation concerns and potential price drops due to mounting competition. Interestingly, his price target for Tesla leaped from $200 to $250, pointing to a modest 4% downside ahead.
His change of heart is a reminder of the erratic nature of the market. He admitted missing the 111% year-to-date rally of Tesla shares, a rally driven by investor enthusiasm surrounding artificial intelligence and American automakers' adoption of Tesla's fast-charging standards.
Further, Barclays analysts pulled back on Tesla, warning the stock's rally had become "too sharp." However, despite the downgrade, the investment bank believes the company remains a cornerstone of all EV portfolios. It points to the EV trailblazer's dominance in the industry, which extends beyond the adoption of its Supercharger network.
Perhaps it all boils down to one investing horizon. No one denies the long-term potential of Tesla's stock as it continues to add new layers to its EV growth story. It has been a juggernaut in the space and remains the industry bellwether after several years in the business. Nevertheless, its recent rally has been admittedly sharp and points to a reversal in fortunes in the coming months. GuruFocus, though, suggests the stock is significantly undervalued based on its GF Value metric.
Takeaway
Undeniably, Tesla's recent ascent has been nothing short of amazing, with its stock catching fire of late. However, investors may find themselves in a quandary: should they continue to ride the wave or take a moment to reassess?
In doing so, staying anchored in the reality of Tesla's product offerings is imperative. It continues to deliver EVs at an extraordinary pace and is poised to continue delivering on its lofty promises in the future.
Moreover, there is much to like about Tesla's innovation in the energy storage sphere, with its latest Megapack configurator boasting a 50% leap from its predecessor. It does not stop there as its comprehensive solution includes solar panels and charging infrastructure, extending its reach beyond energy storage systems. Strategic alliances with heavyweights in the automotive realm added to its allure. Additionally, its growing market share in China is another feather in its cap, with sales in the country surpassing those in the U.S. and Europe in the first quarter.
The short-term positioning of Tesla's stock remains a concern, but expect it to continue retesting its highs over the long run.
