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As the United States and large swathes of the Western Hemisphere rolled forward into a new year with a recession being deemed as being very likely, Tesla’s stock – despite substantive exposure in the resurgent Eastern Hemisphere – quietly gathered an increasingly bearish forward view among industry watchers and analysts.
The broad reasoning behind this is an object lesson in timing and perspective.
The Big Picture
New vehicle sales in the U.S. have been in a steady decline for nearly a decade now, with 2022 being the lowest since 2011. With estimates at around 13.7-13.9 million, this metric represents an 8-9% decline from the previous year. However, electric vehicles accounted for 5.8% of all new cars sold, representing a solid increase from the 3.1% share in the previous year.
However, it bears to keep in mind that China and Europe have collectively represented the majority of EV sales in the world for well over 5 years now – with the former being a massive market.
The Chinese government’s newspaper of record confirmed on the 15th of March – backed by data from both global EV sales trackers and domestic associations – that EVs accounted for 19% and 11% of all car sales in China and Europe respectively. 5.2 million Battery Electric Vehicles (BEVs) were sold in China while 807,180 EVs were sold in the U.S.
The landscape that dogs Tesla in its native homeland of America is the advent of an increasing range of new and entrenched entrants: Mercedes-Benz, BMW, Ford, Cadillac, Hyundai, Kia and Nissan – among others – launched their EVs in the U.S. in the previous year and have been eating into the company’s market share, which dropped from 72% in 2021 to 65% in 2022. China displays a similar but a much vaster landscape: more than 94 brands collectively offer over 300 models – ranging from just $5,000 to over $90,000 – with local brands commanding 81% of the EV market. Tesla held an approximate 14% market share here in 2021 which slipped to the 8.8% mark in 2022.
Of enormous interest are commercial vehicles, which tend to be used much more intensively than passenger cars. Electric commercial vehicles are expected to show an 80% year-on-year increase to nearly 600,000.
China is also expected to remain the leading market here, accounting for nearly twice as many sales as compared to Europe. South Korea is expected to have 25% of the total market share while the U.S. is being projected to potentially be a breakout riser this year, owing to strong fleet demand in its massive logistical network. Here too, Tesla has stiff competition: GM’s BrightDrop, Volvo Truck and Daimler Truck have registered large buy orders.
A crucial factor that supports widespread BEV adoption would be charging infrastructure. In terms of charging infrastructure – both slow and fast – the U.S. is far behind China as well as Europe:
China has a unique advantage in terms of reach: more than 900 million people live in urban areas. With the enforcement of a single standard for charging plugs, heavy state support in building charging networks and subsidies for purchases, over 75% of China’s EV sales have been BEVs in 2022.
Outside of the East and West Coasts, large parts of the U.S. are quite light in terms of charging infrastructure density.
China has nearly 1.8 million chargers installed. Guangdong Province alone has 383,000 – more than double the number of public chargers in the entire United States.
The relative lightness of coverage in the United States is an impediment towards accelerated BEV adoption for all BEV sellers and not just Tesla. As the competition gets more crowded, Tesla’s ground-breaking, industry-leading “first mover” advantage in its home turf is being eroded.
Ratio Trends: Q4 2022 Till Present
For a sense of how Tesla’s stock is perceived, let’s now consider the evolution of two price ratios: the Price to Earnings (PE) and Price to Sales (PS) since Q4 of last year till the present.
In virtually every major region of operation for the company – the U.S., China and Europe – the overall outlook for new vehicle sales (at least for BEVs) is generally bullish, with China leading the pack. However, the company’s stock performance (measured in terms of these ratios) exhibits a gentle decline since a brief period of bullishness in February.
There is some credence to this bearish outlook. For instance, industry observers largely agree that a limited product mix, increasing costs, competition from more affordable options, and domestic sentiment have been hindering its efforts to ramp up its position in China. Steadily rising competition in its home turf – including by well-established carmakers from Europe and Japan – threatens to chip away its massively dominant position. Large-scale recalls due to faults in the self-driving software are threatened with the possibility with compounding as U.S. regulators begin investigations into faults in the steering wheel. With greater lead times in deliveries comes the possibility of prospective customers simply switching to a whole host of alternative with varying value propositions.
Key Takeaways
It would be highly improbable that Tesla would lose all vestiges of its commanding market presence over the course of a single year. Newer models will be launched and deeper service offerings will be brought into place for the company to remain in the picture. In its home turf or anywhere else, it’s simply inconceivable that it will remain the only feasible choice for consumers. Thus, the company’s stock cannot be expected to maintain the high PE Ratio it continues to show, given that the average PE Ratio for the Domestic Automotive Industry lies at around the 11-12X mark. Thus, further stock price rationalization cannot be ruled out.
For investors, it wouldn’t hurt to diversify sector exposure with other tickers and names for consideration. The high conviction the stock had traditionally enjoyed, however, could possibly make the forward-going trajectory a rocky one presenting a variety of opportunities for the tactical investors. For sophisticated investors, the likes of the Tesla 3X Long ETP and Tesla 3X Short ETP provide simple one-click solutions to capitalizing on short-term opportunities on the upside and downside respectively. In addition, as as an earlier article had outlined, these ETPs are uniquely priced to be extremely competitive against the likes of other forms of structured services that they compete with.
Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.
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Notice
If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.
If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.
Risk Warnings
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
United States Visitors
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
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Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
Exclusion of Liability
Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
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