With Chinese automakers entering the EV market and increasing regulatory pressures in Europe, tensions keep mounting for Tesla. Meanwhile, Waymo is racing ahead of Tesla in autonomous driving supremacy. Can Tesla bounce back from such mounting setbacks, or has it lost its edge? The stock price reflects a lot of optimism but are investors realizing the reality?
Tesla, Inc. is an American multinational automotive and clean energy company that designs, manufactures, and sells electric vehicles (EVs) and energy products. It is one of the few companies in its line of business focused on sustainability and innovation. This makes Tesla, Inc. the leading player in electric vehicle technology and renewable energy solutions. The company runs on a vertically integrated model wherein it produces a range of components in-house, including batteries and software.
The main products of Tesla are electric vehicles. They range from Model S to Model 3, Model X, Model Y, Cybertruck, and Tesla Semi to the famous Tesla Roadster. The company also provides generation and storage of energy via solar panels, solar roofs, and battery systems in their Powerwall. The giant’s revenue is primarily generated from the sale of electric vehicles and energy products, leasing, and selling regulatory credits.
The end market for Tesla covers customers seeking an environmentally friendly source of transportation and companies looking for energy solutions. This clientele base includes environmentally friendly consumers and businesses in several sectors who want to reduce their carbon footprints. Recently, however, Tesla has been on a tough road, especially in China and Europe.
Chinese automakers are spilling into the market with affordable, innovative EV models, making it hard for Tesla to sustain its market share. In Europe, things aren’t much better. The European Commission will impose a 7.8% additional tariff on Tesla cars over and above the standard 10% import tariff, all this when Chinese competitors are expected to corner 15% of the market by 2025. That’s a lot of heat for Tesla to handle. On the tech side, it looks like Tesla is stuck in the slow lane in autonomous driving, despite sitting on vast amounts of data that should give it an unassailable lead in the industry.
Alphabet Inc (GOOGL)’s Waymo is running circles around Tesla with robotaxi with over $10 billion in funding and 100,000 paid trips per week. By 2025, Waymo aims for 1 million. The cautious approach of Waymo in terms of customer satisfaction has been rewarded with trust, though one could argue that they’ll have their fair share of problems once they try to scale.
On the other hand, Tesla is mired in FSD investigations that can bring major setbacks. Our bearish outlook for Tesla is based on competitive threats, regulatory challenges, and pricing pressures. The stock has recently hit 52-week highs as investor optimism increases due to Musk’s involvement in Donald Trump’s future government. We believe, however, that Elon Musk will not be able to influence regulation so easily and will in fact attract more eyes, resulting in further scrutiny of his technology.
Tesla ranks 23rd on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 99 hedge fund portfolios held TSLA at the end of the second quarter which was 85 in the previous quarter. While we acknowledge the potential of TSLA as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as TSLA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.