Elon Musk, the chief executive of electric vehicle (EV) manufacturer Tesla (NASDAQ:TSLA), recently attempted to reassure jittery investors about potentially flagging vehicle demand. Granted, Musk had some quarterly financial and operational stats he could point to. Nevertheless, this isn’t the right time to significantly add to one’s share position in TSLA stock.
Sometimes, it’s hard to take what Musk says seriously. However, if Musk has something to say about EV demand, investors might want to listen. When all is said and done, financial traders can choose to maintain a moderately sized position in Tesla shares.
What’s Happening With TSLA Stock?
TSLA stock appears to be on the comeback trail lately. For example, Tesla shares gained 11% on Jan. 27 despite a report that a Tesla Model S “spontaneously” caught fire.
As the Tesla share price approaches $200 after having tested $100 just a month ago, some value-focused traders might wonder if the momentum can continue. There should be room to run, though, as Tesla’s fourth-quarter 2022 financial and operational results indicated an impressive growth trajectory.
Tesla’s revenue increased 37% year-over-year to $24.32 billion and was fairly close to Wall Street’s consensus estimate of $24.67 billion. Meanwhile, Tesla posted adjusted earnings of $1.19 per share, beating the analysts’ average forecast of $1.13 per share.
Furthermore, Musk asserted that concerns about EV demand should be put “to rest.” He added, “We think demand will be good despite probably a contraction in the automotive market as a whole.” I tend to concur, as Tesla recently lowered the prices of its Model 3 sedan and Model Y crossover SUV by 6% to 20%. The price reductions should help to spur demand for those vehicles in 2023.
Could TSLA Stock Decline to $130?
For the aforementioned reasons, it makes sense to hold a moderately sized position in TSLA stock this year. However, there are some concerns to be aware of.
For one thing, as I just mentioned, Musk acknowledged a potentially imminent “contraction in the automotive market as a whole.” Also, the U.S. Securities and Exchange Commission (SEC) is reportedly investigating certain claims Tesla made about its Autopilot driver-assistance system.
Additionally, a well-known finance professor, Aswath Damodaran of New York University, issued a warning about TSLA stock. According to his calculations, Tesla shares are currently overvalued:
“Incorporating the higher risk-free rates and risk premiums of 2023 into the valuation, while leaving the core fundamentals … relatively unchanged, the value per share that I got yesterday was $130.”
It sounds like Damodaran isn’t overly concerned about Tesla’s fundamentals. In the long run, Damodaran expects Tesla to maintain 16% operating profit margins. That’s not far below Tesla’s 16.8% operating profit margin from last year.
Perhaps, then, investors should closely monitor interest rates and their impact on EV buying activity and Tesla’s profit potential. If Damodaran’s concerns are spot-on, Tesla and its shareholders could be in for a rough 2023.
So, What’s the Best Move to Make Now With TSLA Stock?
Tesla’s recently released quarterly results were impressive, and this works in the bulls’ favor. It’s also encouraging to hear Musk reassuring Tesla’s investors about EV demand concerns.
However, Damodaran’s points should be taken into consideration, as well. All in all, the best move to make now is to hold TSLA stock or start a small share position if you don’t already have one. It’s also wise, however, to refrain from making any substantial share additions, at least for the time being.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.