Is Tesla Overvalued As We Enter An EV Price War?

After the regular market close last Wednesday, Tesla, Inc. (NASDAQ: TSLA) reported impressive 4Q 2022 earnings. Automotive gross profit was US$5.5 billion, up 13% from US$4.9 billion a year ago. Tesla’s 4Q 2022 adjusted EBITDA and EPS from continuing operations were US$5.4 billion and US$1.19, up 32% and 40%, respectively, from 4Q 2021 levels.

Tesla shares have exploded higher thus far in January, rallying about 29% since year-end 2022. The stock’s appreciation has more than tripled the NASDAQ’s 9% gain over the same period.

Perhaps the most interesting comment from CEO Elon Musk on the company’s conference call: Tesla continues to expect to produce 1.8 million vehicles in 2023, up just over 30% from 1.37 million cars produced in 2022. However, a two million-unit production rate this year is possible from both manufacturing and demand perspectives.

TESLA, INC. —  Selected Financial Statistics

(in millions of U.S. dollars, except per share and vehicle production data)4Q 20223Q 20222Q 20221Q 20224Q 2021
Automotive Revenue$21,307 $18,692 $14,602 $16,861 $15,967 
Automotive Gross Profit$5,522 $5,212 $4,081 $5,539 $4,882 
Recurring EPS – Fully Diluted$1.19 $1.05 $0.76 $1.07 $0.85 
Operating Cash Flow$3,278 $5,100 $2,351 $3,995 $4,585 
Adjusted EBITDA$5,404 $4,968 $3,791 $5,023 $4,090 
Cash – Period End$22,185 $21,107 $18,915 $18,013 $17,707 
Debt – Period End$3,099 $3,553 $4,430 $4,812 $6,834 
Shares Outstanding (millions)3,1603,1463,1113,1033,044
Vehicles Produced439,701365,923258,850305,407305,840

Renewed consumer demand

Relative to demand, Mr. Musk said “thus far in January, we’ve seen the strongest orders, year to date, in our history. We currently are seeing orders at almost twice the rate of production.” Apparently, Tesla’s decision to cut prices by as much as 20% on its most popular models earlier this month has prompted a step-change in customer demand.

The degree of demand elasticity is impressive for vehicles which still carry price tags of US$45,000 or more — particularly when many fear at least a mild economic downturn could begin later this year. Still to be determined is whether the increased demand for Tesla vehicles represents new buying or whether it comes at the expense of other EV makers like Lucid Group, Inc. (NASDAQ: LCID)Rivian Automotive, Inc. (NASDAQ: RIVN), or General Motors Company (NYSE: GM).

READ: Will Tesla Price Cuts Lead To An EV Pricing War?

One peer feeling the burn of that decision is Ford Motor Co (NYSE: F), whom yesterday indicated that it will be following Tesla’s lead and cutting prices of its own pure EV, the Mustang Mach-E. Prices are to be cut by as much as $5,900 per vehicle, while analysts expect a price war of sorts to start to unfold.

“Ford just cut Mustang EV prices in response to Tesla’s price cut. Mini price war about to begin with EVs in the US with Tesla’s shot across the bow on price cuts,” commented Wedbush Securities analyst Dan Ives.

Investor fears still abound

Mr. Musk did little to quell investor fears that his frequent political statements and involvement with Twitter could alienate potential Tesla vehicle buyers.  He said he has “one of the most interactive accounts, social media accounts, maybe in the world, certainly on Twitter, and that actually predated the acquisition.” 

Despite the strong 4Q 2022 results, and perhaps more importantly, despite Tesla stock’s being cut more than in half since mid-September, it would be a stretch to consider the shares cheaply valued. Factoring in the company’s net cash position of about US$19 billion and its full-year 2022 adjusted EBITDA of US$19.2 billion, Tesla trades at nearly 25 times 2022 adjusted cash flow. For a capital-intensive business which faces much more electric vehicle production competition than it did just a few years ago, such a multiple is extraordinarily high.

Tesla, Inc. last traded at US$166.66 on the NASDAQ.

Information for this briefing was found via Edgar and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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