Should you buy a Tesla when it’s under $200?

After the strong growth of the company and its stock last year, Tesla (NASDAQ: TSLA) 2024 is off to a rocky start. The stock doubled in 2023 but fell 25% in the first six weeks of the new year.

There are a number of reasons why investors have sold off Tesla stock recently. However, as a result of this decline, the stock recently traded at its lowest levels since last spring. Now it makes sense to see what caused Tesla shares to fall below $200 per share, and whether this is a good opportunity for investors to buy.

The benefits of slowing electric vehicle growth

Tesla achieved its electric vehicle (EV) production target in 2023, growing 35% from 2022. Most of the 1.8 million electric vehicles Tesla delivered were Model Y SUVs, the world’s best-selling model last year. But over time, there are signs that overall EV demand growth is slowing.

Interest rates are one reason. During Tesla’s third-quarter investor call in October, Chief Executive Elon Musk specifically said, “If interest rates stay high or higher, it’s going to be more difficult for people to buy cars. They just can’t. rise.”

Fast forward to Company’s fourth quarter conference call Late last month, as Musk began to consider the potential benefits of a rate-cutting cycle that many expect to begin this year, he said: “We have a lot of people who want to buy our cars but simply can’t afford them.” “So… “As interest rates come down and monthly payments go down, they can afford to buy a car.”

Another advantage Tesla has gained from slowing demand for electric vehicles is that, like Ford and General Motors It has scaled back its production plans for electric vehicles. Ford Chief Executive Jim Farley told investors that his company is rethinking its plans to vertically integrate its electric vehicle and battery production. If demand for electric vehicles accelerates again, this will once again give Tesla a cost advantage.This could lead to a rebound in Tesla’s declining profit margins Average selling price (ASP) increasedThis will be something investors cheer. After all, even after cutting vehicle prices multiple times last year, the company still generated $4.4 billion in free cash flow after spending for future growth.

Solar energy and energy storage

Another thing investors may start paying more attention to is the growth of Tesla’s energy business. Its energy storage business grew by more than 130% in 2023. The increase in deployed Megapack storage capacity and power generation resulted in revenue of more than $6 billion last year.

Bar chart showing Tesla Energy segment quarterly growth in 2022 and 2023.

Source: Tesla, chart provided by author.

That’s a meaningful number, and on the call, Musk expressed optimism that growth will continue. “I think we’re going to continue to see strong growth in storage, as predicted,” he said.

Elon Musk Factor

There are risks associated with owning any stock. But Tesla’s unpredictable CEO creates some additional risks for investing in the company. Musk said he hopes to own more shares in the company to better control the company’s efforts in artificial intelligence technology. But a shareholder recently won a lawsuit that nullified the nearly $56 billion Musk compensation package approved by Tesla’s board of directors in 2018.

That raises concerns about Tesla’s corporate governance and raises questions about the prospects for board or leadership changes. The stock could take a hit if Musk decides to focus on one of his many other big projects.

Still, for those who can stomach those additional risks, Tesla’s recent dip below $200 per share could provide an enticing opportunity to gain exposure to the multi-faceted EV leader. If electric vehicles continue to grow, even if at a slower pace than before, Tesla will be the biggest beneficiary in the coming years.

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Howard Smith Own a position in Tesla. The Motley Fool holds a position in and recommends Tesla. The Motley Fool recommends General Motors and recommends the following options: Long January 2025 $25 call option on General Motors. Motley Fool holds disclosure policy.

Should you buy a Tesla when it’s under $200? Originally published by The Motley Fool

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