Should we buy Tesla stock after a 40% drop this year?

  • The current Macro-environment is hostile to high-growth companies
  • Tesla’s 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 a great buy bet on the bottom since the pandemic hit in early 2020. Every time the world’s largest electric car maker has taken a steep dip, it has rebounded quickly and rewarded its loyal investors.

But with economic headwinds gathering pace and some economists predicting a recession around the corner, it’s hard to predict whether Texas-based Tesla will once again reward patient investors who continue to cling to it.

Judging by the market reaction, it looks like Tesla shares are in 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.

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

Musk also planned to use some of his Tesla stock as collateral for loans to pay for the Twitter operation, although his latest funding did not include pledges of shares.

A prolonged slowdown

Besides the Twitter problem, the current macroeconomic environment is rather hostile to high-growth companies like Tesla. Factors such as rising raw material costs, supply chain bottlenecks and production disruptions in China point to a prolonged downturn in growth stocks and prospects for a quick rebound.

Sentiment in the market is so negative that Tesla’s recent decision to seek approval for a three-fold stock split has not been met with enthusiasm. In contrast, a similar move by the Austin, Texas-based EV maker in 2020 contributed to a 60% jump in share price between announcement day and execution date.

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

RBC analysts last week raised Tesla’s rating from “market perform” to “outperform,” saying in a note to clients that Tesla should be able to outperform competitors over the long term through its investments in the supply chain. ‘supply. His note adds:

“As EVs enter their third phase (everyone has EVs) in the middle or end of the decade, we believe that the ability to deliver EVs will increasingly depend on the supply chain.”

“While TSLA is fairly tight-lipped about the deals it has made for raw material sourcing, speaking to contacts we believe it has done more than other OEMs. by the company on vertical integration (not just batteries/raw materials but also motors, seedlings, software) should bear fruit.”

RBC, however, lowered its price target on Tesla from $1,175 to $1,100. This new target is about 69% higher than the stock’s closing price on Friday.

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

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

{Morgan Stanley also reiterated Tesla’s overweight, saying investors should hold the stock after reports emerged that Musk announced a tough quarter in an email to employees. His note says:

“Tesla has shown throughout its history that it can catch up with significant backlog through accelerated deliveries at the end of a quarter, where disproportionate amounts of a full quarter’s production can occur in the last or the past two weeks. Additionally, what might be lost in the second quarter could simply provide pent-up sequential tailwinds for third quarter results.”

Conclusion: Should we buy Tesla stock?

After a selloff in Tesla stock during the current downturn, some analysts see value at current levels, given the automaker’s big lead in the EV market and strong production track record.

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