ANALYSIS BY HENRY CHIA | After trading at astronomic multiples in 2021, and one point earning a market cap equal to 13 of the world’s largest automakers, Tesla stock has fallen from grace (dramatically) in 2022.
Anyone who purchased Tesla stock at the start of the year and held, would now (end of the December) be sitting on losses of around 70%.
But is it really all doom and gloom for Tesla stock in 2023?
I’d argue not.
In fact, the Tesla business has never been in better shape.
Tesla’s product pipeline and launch schedule have barely deviated in many years, and despite all you hear about Elon Musk, management have been executing on business plans.
This month we saw the Tesla Semi launched with a strong book of orders. While mass production of the Tesla Cybertruck will commence in late 2023 with over 1.5 million paid reservations made by buyers (however, it’s likely not all will proceed with a full purchase).
But the one big catalyst for 2023 could be U.S. Government tax incentives for EVs, under the Inflation Reduction Act.
From January 1, buyers of Tesla vehicle will qualify for a tax credit of up to $7,500. This will see immediate increased demand for EVs and Tesla maintains a dominant market share.
Then there’s China.
The Chinese economy has been a point of much contention for those trying to work out if Tesla stock will recover in 2023.
While there are some concerning data points about Chinese domestic consumption, Tesla has outright rejected suggestions of any considerable demand decline from China’s mainland.
In November Tesla sold 100,291 vehicle in China – all manufactured at its Shanghai Gigafactory. That was an all-time-monthly record. So much for slowing Chinese demand!
Underpinning all of this is Tesla’s extraordinary business model. At this point in time, no company can manufacture an EV more profitably than Tesla. This allows Tesla to discount (if need be) much more sustainably than competitors, and potentially damage competitors in the process.
Finally, at the bottom line, Tesla stock presents a strong balance sheet, some $21 billion in cash and no debt.
Next stop for investors will be Tesla’s full year results released in February. Any surprise on the upside could see Tesla stock soar, and could even lead to a major short squeeze.