Shares of electric vehicle (EV) manufacturer Tesla (TSLA 0.56%) are at an all-time low based on analyst estimates for 2023 earnings. When compared to previous times, Tesla trades at a pitiful 28 times forward earnings multiple.
However, before referring to Tesla as a value stock, it is essential to keep in mind that earnings estimates are just that: estimates. They can be very wrong, and they often are.
For Tesla’s situation, there are signs that the organization is beginning to have an interest issue. In China, it has reduced prices, which is not something that a business does when demand exceeds supply. Additionally, the company has denied rumors that it was reducing production at its Shanghai facility.
It’s beginning to look like there will be a recession in 2023. Consumers are beginning to cut back on spending in the United States. The Trade Division investigated Thursday that U.S. retail deals dunked 0.6% in November as the Christmas season truly got rolling. High-priced electric vehicles will not do particularly well in this setting.
There’s likewise definitely more rivalry today than whenever in the past in the electric-vehicle market, which is certainly not something beneficial for Tesla’s maturing setup. Despite maintaining its dominance in the United States, the company is losing market share.
It is risky to assume that earnings will continue to rise. To understand why, you only need to look at Meta Platforms (-4.47%) and Coinbase (-5.50%).
Until recently, shares of the social media giant Meta appeared to be a value stock. In 2021, the business saw an increase of 36% in adjusted earnings per share (EPS) to $13.77. At its 52-week high, Meta stock exchanged for multiple times those income. For a predominant online entertainment organization with more than 3.5 billion month to month dynamic clients and fantastic overall revenues, that cost appeared to be unrealistic.
To justify a price-to-earnings ratio (P/E) in the mid-20s, Meta would not need to significantly expand its bottom line. Sadly, a number of factors have caused the company’s earnings to plummet. The economy is hard on the advertising market, privacy changes made by Apple to iOS devices have hurt targeted ads, and excessive spending on virtual reality and metaverse projects has hurt profits. Meta’s earnings per share are now anticipated to be just $7.86, down 43% from 2021 by analysts.
Since reaching its 52-week high, Meta stock has lost approximately two-thirds of its value. It was anything but a worth stock.
Extreme uncertainty Coinbase, a cryptocurrency exchange, experienced a scenario comparable to this one. The organization raked in huge profits during the pandemic-period digital money blast, with income taking off by in excess of an element of six and EPS flooding by a variable of 10 of every 2021. In 2021, the company had EPS of $14.50, putting its P/E below 20 at its 52-week high. The P/E ratio plummeted into the single digits as Coinbase stock fell.
If you assume that those earnings will continue, Coinbase stock appears to be cheap. They didn’t. Prices fell, the cryptocurrency bubble burst, and the industry was rocked by scandals, blowups, and frauds. Coinbase has reported a $9.39 net loss per share for the first three quarters of 2022. The stock is down an incredible 86% from its 52-week high.
For the foreseeable future,
Tesla intends to increase production by 50% annually, a difficult task. That will be difficult to manage next year due to the law of large numbers and a possible recession.
Over the course of the past few years, the business has seen an impressive increase in its profit margins. However, this was achieved in the context of high demand for automobiles and constraints in the supply chain that led to higher prices. That extremely favorable setting is no longer there.
The cost of financing a new car has risen significantly as a result of rising interest rates. People who want to buy a Tesla Model 3 or Model Y before the end of the year may be able to save $3,750, according to reports. That’s not a very encouraging sign.
It seems likely that Tesla will have a difficult year in 2023. Those income gauges are presumably not reasonable. Some Tesla models will be eligible for a new federal tax credit for EVs beginning next year, but that credit is also available for many non-Tesla vehicles.
Some investors in Meta and Coinbase made the mistake of thinking that the future would be very similar to the past. They neglected to account for uncertainty.
Regarding Tesla’s results in 2023, there is currently a great deal of uncertainty. Tesla stock is not even close to being as cheap as it appears when you take into account the possibility that earnings will plummet due to decreased demand during a recession.
