Investing in Tesla demands a combination of shrewdness, steely determination, and a robust strategy. This truth holds even more weight in 2024.
In January 2023, we astutely advised purchasing Tesla stocks, highlighting the unfounded nature of market downturns attributed to Elon Musk’s acquisition of Twitter (now X) and the price reductions of electric vehicles. As it turned out, our recommendation proved fruitful. As of Friday’s trading session, Tesla stock has surged approximately 110% since our suggestion.
Unpredictability exemplifies Tesla shares, as they often deviate from conventional projections. To weather the storm of volatility, steel-like nerves are indispensable. Now, one must contemplate whether to seize the opportunity and cash in or place another bet for a potentially momentous year.
The case for selling warrants consideration. Bernstein analyst Toni Sacconaghi, who previously regarded Tesla as a short-term investment in a December report, highlights a peculiar situation wherein earnings forecasts for this year have dropped by 50%, despite the stock’s doubling in value during the previous year. Sacconaghi anticipates a decline in demand, largely influenced by the limited availability of Tesla’s two cars for purchase: the Model 3 and Model Y.
Currently, industry analysts foresee a meager 17% increase in sales volume in comparison to 2023, representing a total of 2.1 million vehicles sold this year. These figures fall significantly short of Tesla’s ambition to achieve a 50% annual growth rate. To reach this ambitious objective, Tesla would have to sell 3 to 4 million Model 3 and Y vehicles annually—an aspiration deemed by Sacconaghi as “completely unrealistic and unanchored in basic market sizing data.” Consequently, Sacconaghi has assigned a Sell rating to the stock with a price target of $150.
The decision, whether to hold onto lucrative gains or embrace the possibility of further success, remains in the hands of prudent investors.
Baird analyst Ben Kallo believes there are several catalysts that could push Tesla’s shares to $300, marking a significant 25% increase from the previous closing price. Kallo points to the introduction of a low-priced model, a refreshed Model Y, savings in raw material costs, and improved production efficiency as factors driving this optimism. In line with his positive outlook, Kallo views Tesla as the leader in the electric vehicle (EV) industry and recommends it as a core investment.
However, it is essential to consider an alternative perspective. Several years ago, a fund manager who was bullish on Tesla explained his approach to managing his position. He would increase his holdings when the stock was undervalued, allowing it to comprise up to 5% of his portfolio. Conversely, as the stock price soared, he would gradually sell down his position to around 2%.
This strategy resonates with us. While we maintain a long-term bullish view on Tesla, we believe it is prudent to position ourselves towards the lower end of the range at this time. In June, we recommended selling up to half of our Tesla holdings when the stock price exceeded $250. As shares continue to trade at similar levels, we see no immediate reason to divest further.
The future trajectory of Tesla hinges on the success of its Model 2. In the last quarter, China’s BYD, by primarily offering more affordable electric vehicles, managed to outsell Tesla in terms of battery electric car sales. Tesla has plans to introduce a lower-priced EV in response, but the exact timing remains uncertain. While orders may begin accumulating towards the end of 2024, it is reasonable to assume that these vehicles will hit the roads sometime between mid-to-late 2025.
Until then, we are comfortable holding onto our remaining Tesla position. Betting against the market leader, even within the volatile landscape of Tesla, rarely proves favorable.