Don't Be Fooled Again (by Tesla)
The Credit Strategist Blog
TSLA stock has risen by ~50% off its lows on hopes and prayers that the worst is behind the grossly overvalued automaker. The company started a pricing war in the EV space to protect its falling market share as the costs of key components are rising, pressuring margins. But TSLA doesn’t have the heft to drive out larger and more deep pocketed competitors who will continue to eat away at its market share and margins over time. Further, the entire auto industry is reevaluating the extent to which it can transition to EVs in view of significant constraints on component supplies for these vehicles, the higher costs of these vehicles, and other factors. The trajectory of EVs is starting to face headwinds that weren’t contemplated by those hypnotized by the false promises of a future bereft of fossil fuels. No such future exists and it is time to adjust our expectations.
In its 4Q22 earnings report, TSLA said that price cuts led to extremely strong early 2023 orders which caused the stock to rally further. But the company faces a much tougher competitive landscape than ever before. And longer term, there are good reasons to doubt that the company’s still grossly inflated (now nearly $500 billion market cap in pre-market trading this morning) is remotely sustainable (unless the Federal Reserve unleashes another epic monetary bubble which is not in the cards for now).
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