At what point does Tesla (TSLA) stock become too cheap to ignore? It can be argued that the stock, which has fallen nearly 20% over the past month, has already reached that point.
Since the electric vehicle maker reported its fourth quarter earnings on January 24, TSLA shares have given up as much as 17%, falling to a low of $175. While the stock has recovered since then, hitting a recent high of $194, it’s still a 37% gap from its 52-week high of $299. This includes 20% declines in six months, while the S&P 500 index is up 12, 5% As it stands, the stock is now down 22% year to date, trailing the 5.4% rise in the S&P 500 index.
For investors waiting for the dust to settle, there are still plenty of reasons to expect Tesla stock to march higher. The stock has become grossly oversold as a result of Tesla missing Q4 estimates on both revenue and earnings. While Wall Street continues to focus on the company’s pricing challenges and headwinds related to demand, this is not the first time that experts have proclaimed the death of the EV transformation and questioned Tesla’s leadership abilities in that industry.
ARK Invest’s Cathie Wood remains bullish on Tesla stock. “Tesla is going through a downturn right now relative to the cycle,” Wood said on CNBC. “But when autonomous taxi networks, platforms take off, as we think they will within the next couple of years … then what we’re talking about with Tesla is a retargeting of growth and a huge increase in margins,” she added.
Meanwhile, Wedbush Securities’ Dan Ives, who believes the bears are wrong, added more assurance to Tesla stock. “We couldn’t disagree more with the ultra negative Tesla story building and forming a black cloud over the stock,” Ives wrote in a note to investors. “While the next few months are clearly a bit murky for the Tesla story and overall EV demand, longer term our view is that by the end of the decade ~20% of cars will be EVs with autonomous and FSD a reality and not a dream. / aspiration.”
Citing Tesla’s underwhelming earnings report, Ives was unwavering in his support, maintaining his buy-equivalent rating of “Outperform” with a 12-month price target of $315. From current levels, Ives price target assumes potential premiums of 66%. To be sure, there are still critical questions Tesla needs to answer for investors, namely the outlook for margins after pricing in multiple markets. Here the company will need to show revenue growth in higher margin service businesses such as its Full Self-Driving (FSD) software, which is poised to revive the company’s profit margins.
The company is betting big on FSD, which will be the birth of the autonomous vehicle development and is designed to automate Tesla vehicles so that they can operate without a driver behind the wheel. Tesla’s FSD is at Level 3 automation (conditional driving automation), which means a driver must be engaged at all times. However, once FSD can navigate autonomously, it will not only boost Tesla’s profit margins, it will be a profit center of recurring revenue for Tesla through the company’s ambition for Robotaxis.
Essentially, while the market is focused on the near-term headwinds revealed in the Q4 earnings report, it was notable that Tesla’s management spent significant time discussing high-margin services. The company’s efforts to monetize its FSD feature by licensing the FSD software to other EV makers may become a profitable business to revive the stock. Essentially, Tesla’s current competitors may eventually become the company’s partners.
As such, with Tesla stock trading below where it stood both a year ago and two years ago, now is the time to bet on a rebound in the next 12 to 18 months.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.