Weekly Brief: Tesla’s Under Pressure, And Musk’s Feeling The Heat

Weekly Brief: Tesla’s Under Pressure, And Musk’s Feeling The Heat

over 1 year ago4 mins

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Elon Musk blamed Tesla’s lower-than-expected deliveries on some far-flung factors, but the world’s richest man might still be sweating as pressure continues to heat up.

🕰 Recap

  • Tesla delivered a record number of cars worldwide last quarter, but that all-time high came in well below the number of vehicles it actually made
  • That could be a sign of waning demand for Teslas, but Elon Musk was quick to pin the blame on other factors during the firm’s earnings call this week
  • Still, Elon might be sweating: Foxconn announced a lofty goal on Tuesday to manufacture nearly half of the world’s EVs

✍️ Connecting The Dots

Elon Musk’s Twitter takeover drama has been so enthralling that you’d be forgiven for forgetting about Tesla, the billionaire’s other little venture. Well, there’s plenty to catch up on: earlier this month, the firm announced that it delivered a record 344,000 cars worldwide in the third quarter, up 42% from the same time last year. Thing is, that was still fewer than what analysts expected, and it was a long way off the 366,000 vehicles Tesla actually produced during the quarter.

Investors, in turn, started worrying that demand for Tesla’s cars is dropping off. Those cars are expensive, after all, and their prices are only rising to keep ahead of higher costs, which explains why the firm’s auto business held its gross profit margin steady at 28% last quarter. Musk, however, blamed the production-deliveries gap on logistical problems that are delaying cars from arriving onto customers’ driveways. And in a bid to distract concerned investors, he dangled a buyback-shaped carrot to the tune of between $5 and $10 billion next year. To top things off, he predicted that Tesla’s market value – around $650 billion today – will one day surpass Apple and Saudi Aramco’s combined value of more than $4 trillion.

That’s a very ambitious prediction – especially if demand fatigue really has started to kick in – at a time when Tesla’s facing more competition by the day, from both legacy automakers and EV startups. In fact, this week saw a new entrant: Foxconn just announced a zealous goal to manufacture nearly half of all EVs sold globally in the long term. The electronics maker plans to make those vehicles for other firms, rather than selling them under its own name, which will make it much easier for other newcomers to break into the EV market without forking out huge sums on building out their own factories. And because Foxconn already manufactures the iPhone and iPad, it could potentially team up with Apple to manufacture the tech giant’s long-awaited EV. That would be a formidable pairing, and one that could seriously challenge Tesla’s reign.

🥡 Takeaways

1. Even at $650 billion, Tesla’s valuation isn’t cheap.

Tesla’s current market value of $650 billion is 30x its forecasted 2024 earnings. That multiple is 500% higher than carmakers like General Motors and Mercedes-Benz, and 50% more than Apple. It’s even above Chinese rival BYD, which overtook Tesla as the world's biggest EV maker by sales this year. Granted, Tesla’s highly profitable and is poised for lots of growth ahead, but a lot of that’s arguably already priced into its current market value. So how the firm plans on hitting that $4 trillion-plus value mark anytime soon is anyone’s guess.

2. Still, research analysts stay bullish on the stock.

Research analysts are putting Tesla’s recent delivery issues out of mind, and focusing more on its swelling sales and the recent extension of a $7,500 tax credit for EV buyers in the US – Tesla’s biggest market. In fact, Bloomberg data showed 27 of 49 research analysts – about 55% – who follow Tesla recommend buying the stock. That’s the highest percentage of buy ratings since early 2015.

🎯 Also On Our Radar

On Wednesday, US president Joe Biden approved the sale of 15 million barrels of oil from the US Strategic Petroleum Reserve in December. Although the president insisted that the move was “not politically motivated at all”, it probably is a bid to ease high gasoline prices that have become a liability for Democrats ahead of next month’s midterm elections. After all, at just under $4 per gallon, gasoline prices are almost 60% higher than when Biden took office back in January 2021.

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