Mike Sakuraba graduated with double major of English and Economics. Part time writer, part time investor, full time dad. Mike loves writing about technology, sports, and investing.

2022-09-04 11:15

Tesla Completes its 3 for 1 Stock Split
Compared to its stock split in August of 2020, the recent 3 for 1 split for Tesla ($149.41|-3.89%) was uneventful. In fact, it was downright disappointing. The stock fell lower for four consecutive days and five of six following the split. I never thought I would see the day where investors are not gobbling up Tesla’s stock at a price below $300.00.

It’s likely the nature of the bear market environment. We saw similar quiet stock splits from tech giants like Alphabet (NASDAQ:GOOGL), Amazon ($180.8|-0.27%), and Shopify ($68.63|-1.12%) earlier this year. Even if investors are excited about the lower stock prices, there really isn’t much to be bullish on right now. The Fed has all but guaranteed rising interest rates into 2023 which is causing some negative sentiment for these growth stocks.

So it begs the question: why isn’t Tesla a buy following the stock split?

Global Headwinds for Tesla
I wrote another article this week about how I am turning bearish on Tesla’s stock for the short-term. I have always been a long-term Tesla bull, but like the market, I just don’t see any significant chance of upside for the rest of this year. Even though demand is high for Tesla and analysts are raising the price targets, I just see no reason to be excited.

China has implemented new COVID-restrictions in Chengdu and Shenzhen. This has caused some concern that we could see a repeat of the lockdowns in Shanghai that had a direct impact on Tesla’s deliveries this year. Not to mention CEO Elon Musk mentioning that the Berlin and Austin GigaFactories are burning more cash than they are making right now.

While Tesla remains a global brand, other companies like Toyota and BYD are rapidly expanding into other markets. BYD is competently challenging Tesla’s delivery figures and sold more than 173,000 EVs in the month of August.

There is Still Hope for Tesla’s Stock
Ignore the Twitter sideshow for Musk because ultimately I don’t think this will have much impact on Tesla’s operations. In the end, Tesla’s growth story and targets haven’t changed. It is planning for 2 million annual deliveries in 2023, with a continued 50% growth rate in each year following. The company is already looking at new locations for GigaFactories including Canada, the UK, and potentially even India.

But can Tesla fend off legacy automakers, particularly the likes of Toyota? Tesla more or less needs the electric vehicle industry to remain a high-end, premium market. Toyota, BYD, and other EV makers are planning on releasing mass market lines, which could put a major dent in Tesla’s sales. On the flipside, Tesla is anticipating production of both the Cybertruck and the Semi next year.

There are a lot of balls up in the air right now for Tesla, but the most surprising thing is that investors are not buying the cheaper stock following the split. Either Wall Street is feeling some Tesla fatigue or nobody has any funds left to buy shares with. At the end of the day, Tesla’s current price levels are still not cheap by any means. With a forward-looking price to earnings of 70, one has to wonder how much growth Tesla can have now to bring those price multiples back down to Earth. Tesla is an $863 billion company, and typically we do not see businesses of this magnitude exhibit rapid growth. For now, I don’t think there is much upside for Tesla but the stock is still attractive given what the future of this company could truly be.