Are Tesla shares still a Buy-The-Dip game after falling 40% this year?

  • Current macro-environment hostile to high-growth companies
  • Tesla stock losses accelerated after CEO Elon Musk offered to buy Twitter
  • Some analysts see value in low-priced stocks
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Tesla (NASDAQ:) has been an excellent buy bet on the downside since the pandemic hit in early 2020. rewarded its loyal investors.

But as economic headwinds gather pace and some economists predict a looming recession, it’s hard to predict whether Texas-based Tesla will once again reward patient investors who continue to stick with it.

Judging by the market reaction, it looks like Tesla shares are in for a perfect storm. They have fallen nearly 40% this year, double the losses suffered by the benchmark over the same period. They closed Friday at $650.28.

Losses for the electric car maker’s shares have accelerated since CEO Elon Musk offered to buy Twitter (NYSE:) in a $43 billion deal in April. TSLA shareholders, however, did not like the idea. They feared that Musk would be too scattered if he tried to overhaul Twitter while running Tesla and overseeing his Space Exploration Technologies Corp.

Musk also planned to use some of his Tesla stock as loan collateral to pay for the Twitter deal, though his latest funding didn’t include pledges.

Extended slowdown

Besides Twitter’s surplus, the current macro environment is quite hostile for high-growth companies like Tesla. Factors such as rising raw material costs, supply chain bottlenecks and production disruptions in China point to a prolonged slowdown in growth stocks and low chances of a quick rebound.

Market sentiment is so negative that a recent move by Tesla to seek approval for a 3-for-1 stock split has generated no excitement. In contrast, a similar move by the Austin, Texas-based electric vehicle maker in 2020 contributed to a 60% rise in share price from the day of the announcement to the date of execution.

Despite this difficult environment, some analysts see value in Tesla’s beaten stock price and recommend that long-term investors take advantage of this weakness.

RBC analysts upgraded Tesla to surpass their market performance rating last week, saying in a note to clients that Tesla should be able to hold off competitors in the long run because of its supply chain investments. His note added:

“As EVs enter their third phase (everyone has EVs out there) in the mid-to-late decade, we believe the ability to deliver EVs will become increasingly chain dependent. supply.”

“While TSLA is fairly secretive about the deals they have made for raw material supply, speaking with contacts we believe they have done more than other OEMs. The initial focus of the company on vertical integration (not just batteries/raw materials, but also motors, semiconductors, software) should pay off.”

RBC, however, cut its price target on Tesla to $1,100 from $1,175. The new target is around 69% above the level where the stock closed on Friday.

UBS, in its recent note, said it was a “time to be bold” and upgraded Tesla to buy from neutral. The firm reiterated its price target of $1,100 on the stock. His note said:

“We believe the operating outlook is stronger than ever. We expect Tesla’s vertical integration into semiconductors, software and batteries to result in superior absolute growth and profitability in the years to come. »

Morgan Stanley also reiterated that Tesla is overweight, saying investors should stick to the stock after reports surfaced that Musk warned of a tough quarter in an email to employees. His note said:

“Tesla has shown throughout its history that it can catch up substantially with accelerated deliveries at the end of a quarter where disproportionate amounts of a full quarter’s production can occur in the last week. or 2. Additionally, what might be lost in Q2 could simply provide pent-up sequential tailwinds for Q3 results.

Conclusion

After a massive sell-off in Tesla stock during the current downturn, some analysts see value at current levels, given the automaker’s vast lead in the electric vehicle market and strong production record.

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