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Stock prices of Tesla (NASDAQ: TSLA) are up about 21% in five days since it was reported that second-quarter vehicle deliveries exceeded Wall Street expectations. However, the longer-term downward trend of the electric vehicle (EV) manufacturer remains in place as it struggles with high interest rates, competition and other macroeconomic factors.
Could Q2 deliveries indicate a sustainable recovery, or will Tesla continue to fade out? Let’s see what the next five years may have in store for this innovative EV leader.
Second quarter deliveries exceeded expectations – or did they?
Tesla investors don’t have to wait for earnings results (expected to be released this month) to stay up to date on the company’s performance. Management typically releases production and delivery data jointly with other vehicle manufacturers on a quarterly basis (previously it was released monthly). And the highly anticipated second quarter figures were no exception.
With 443,956 cars delivered in the second quarter, Tesla surpassed Wall Street’s consensus forecast of 439,000. But this is still 4.8% less than the same period last year and represents the second consecutive quarter of declining deliveries, following a 13% year-on-year decline in the first quarter.
The better-than-expected delivery numbers fueled a double-digit percentage rally in the stock price, but the automaker is not out of the woods yet. The extent of the weakness could be be revealed when the company releases its version full quarterly report.
Multiple key problems may arise. First, there’s the pricing. Automakers can stimulate volume growth by lowering prices. But this can be at the expense of turnover per car sold and margins. For Tesla, this could pose a major problem, as its previously high margins are the main thing differentiating it from its uninspiring mass-market rivals.
It is in the first quarter operating margins fell from 11.4% to 5.5%. And continued declines could turn the company into just another automaker.
Musk to the rescue?
Immediately price-to-sales (P/S) multiple of 6.33, the shares are trading at a significant premium compared to the average price big American car manufacturer. For context, Ford Motor Company And General engines trade for a P/S of just 0.3 and 0.36, respectively. And if Tesla becomes just another car company, it could lose much of its $560 billion valuation. Shareholders are counting on CEO Elon Musk not to let this happen.
Fresh off securing a $44.9 billion stock-based pay package, Musk is stimulated make every effort to increase the share price. He appears to be downplaying opportunities in the automotive sector in favor of new growth engines such as robotics and technology artificial intelligence (AI).
The company is working on Dojo, a supercomputer designed to help train its machine learning models for full self-driving (FSD). While Tesla isn’t the only company tackling this effort, it has some advantages due to the vast amount of user data it can collect from its customers with FSD software installed in their cars. Musk says his robotaxi will be unveiled on August 8, along with his next-generation vehicle platform.
When robotaxis are ready for consumers, they could unlock a new non-auto revenue stream for Tesla. during brewing it is well-positioned to explore other AI applications over the next five years and beyond, such as warehouse automation or possibly even humanoid robots.
Is the stock a buy?
Tesla has once again become a highly speculative company. If current trends continue, the previously high-margin EV business could become a commodity in the next five years amid increasing competition and lower pricing power. This is not enough to justify the shares forward price-earnings ratio (P/E) ratio of 57 compared to the Nasdaq Composite average price-earnings ratio of 32.
Investors buying the stock now are betting on Elon Musk and his ability to transform the company into more than just an automaker through AI and robotics. This is quite a task. And the controversial director has a track record of overpromising and underperforming.
That said, Musk has saved Tesla from the brink multiple times, so there’s good reason for the market to have some confidence in him. The The stock appears to be on a hold pending more information.
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Wil Ebiefung has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Tesla. The Motley Fool recommends General Motors and recommends the following options: In January 2025, $25 would appeal to General Motors. The Motley Fool has one disclosure policy.
Where will Tesla stock be in 5 years? was originally published by The Motley Fool