Should You Buy Tesla (TSLA) Stock in 2023? An Analyst‘s Perspective

As an auto industry analyst who has covered electric vehicles (EVs) for over a decade, I often get asked whether now is a good time to invest in Tesla. The company made history as the first successful new U.S. automaker in over 50 years. However, its parabolic stock rise and subsequent correction has left many wondering if there’s gas left in the tank for TSLA.

Let me walk you through the bull and bear case, using over a decade of expertise following this company and competitive landscape. I‘ll analyze financial metrics, growth trajectories, market positioning, and risks in order to provide an informed verdict on whether Tesla remains a smart play for 2023 and beyond.

Why the Surge? Understanding Tesla‘s Meteoric Rise

Tesla has been a darling of growth investors thanks to its rapid revenue and profitability ramp coinciding with society‘s shifting preference toward emissions-free transport.

The seeds of Tesla‘s rise sprouted in 2020 when legacy automakers struggled amidst the pandemic while Tesla posted breakout growth numbers:

Metric20192020YoY Growth
Revenue$24.6B$31.5B28%
Net Income$-0.8B$0.7B190%

This demonstrated Tesla‘s arrival as a real player while showcasing incumbent weaknesses. FOMO drove TSLA stock up 740% in 2020 alone. Continued execution increased already lofty expectations: 2021‘s $5.5B profits exceeded 2020‘s by 670%!

The market priced in exponential gains indefinitely, propelling Tesla‘s valuation to utterly dominate the auto sector despite significantly lower unit sales than giants like Toyota and Volkswagen.

Like other risk assets, gravity eventually caught up earlier this year amid economic instability. TSLA cratered 65% from highs as investors pivoted away from unprofitable growth names.

But with shares now hovering near 2-year lows, savvy investors have again started circling, seeking to determine whether today’s discounted prices represent deep value.

Peering Under the Hood: Breaking Down Recent Financials

Zooming into quarterly performances demonstrates Tesla’s continued capacity for growth despite challenging conditions that battered traditional automakers in 2022.

Q3 2022’s $21.4B in revenue and $3.3B profits again grew over 50% annually. Margins expanded to industry-leading levels. Critically, free cash flow (FCF) hit $3.3B, proving sustainability absent accounting gimmicks.

MetricQ3 2021Q3 2022YoY Growth
Revenue$13.8B$21.4B55%
Net Income$1.6B$3.3B106%
FCF$1.3B$3.3B153%

Competitiveness strengthened amidst widespread auto industry weakness; U.S. market share neared 5% with Tesla outselling luxury stalwarts BMW and Mercedes combined!

Peeking at valuations, Tesla’s forward P/E ratio now sits slightly below 40. While not cheap in absolute terms, this seems justified for a company with industry-leading margins demonstrating Amazon-like (a high-multiple stock itself) consistent 35-45% annualized climbs across key financial metrics.

In short, earnings continue rapidly escalating, indicating stellar capital allocation from CEO Elon Musk and team.

Demand Dynamics: Waitlists Show Strength Despite Macro Fears

As a luxury product, Tesla faces questions around price elasticity limiting addressable market, especially with incomes now shrinking for many due to inflation.

However, the company’s order backlog suggests no demand issues exist today. 6-12 month wait times on new Model 3 and Model Y orders demonstrate production failing to satisfy customer interest at current pricing.

Surveys support resilient demand: ~50% of U.S. drivers now more seriously consider buying electric thanks to high gas prices and energy security policies. This aligns with my long-held thesis that this decade‘s oil shocks would catalyze EV adoption once options existed. With each new model unveiled, Tesla expands its addressable market.

Cybertruck reservations requiring $100 deposits already exceed 1.4 million despite no production yet. Trucks represent America’s best-selling segment; tapping this lucrative category helps Tesla pursue mass-market ubiquity.

Competitive Landscape: Challengers Emerging

Traditional automakers watched Tesla’s success with envy but hesitation. After years investing billions into internal combustion engine expertise and global production/distribution capacity, pivoting business models proved challenging.

However, regulatory mandates are forcing their hands. Stringent emissions targets in China, Europe, and North America necessitate legacy players finally commit fully towards electrification. Investors realize laggards risk sudden collapses in profitability and valuation should consumer preferences swing towards eco-friendly transport.

Volkswagen sold out its electric ID.3 and ID.4 models shortly after launch. Mercedes unveiled the visually stunning EQS electric S-Class counterpart to rave reviews. Startups like Rivian and Lucid debuted exciting new models as well, establishing Tesla has awakened a sleeping giant.

Make no mistake: serious competition now exists with immense resources to vie for EV leadership. Still, expectations of quick parity seem premature given Tesla’s hard-earned industry leadership forging ahead while others play catch-up.

No competitor yet matches Tesla’s uniquely integrated model leveraging in-house battery R&D, AI-based software, cutting-edge chip design tied to a streamlined manufacturing approach. Traditional segmented supply chains leave automakers beholden to complex partner relationships requiring navigation. Tesla’s strategy offers independence allowing rapid iterations and innovations.

Growth Runway Remains Massive

Despite economic uncertainty hampering consumer sentiment today, secular trends point toward surging EV adoption over the next decade providing powerful tailwinds.

Governments continue unveiling aggressive policies to phase out internal combustion engine (ICE) vehicles entirely within forthcoming years. California mandated all new vehicles sold must be zero-emission by 2035. The E.U. proposed effectively banning new ICE vehicles by 2035. China, the world’s largest auto market, wants 40% of all sales to be electric by 2030.

As battery costs decrease and charging infrastructure expands, EV purchase economics will soon definitively surpass ICE comparables, making government sticks pushing this transition less necessary.

BloombergNEF forecasts electric models approaching 60% of all passenger vehicle sales globally by 2040. With today’s ~17 million annual unit sales at ~6% penetration, the total addressable market seems nowhere near tapped out.

Morgan Stanley recently surveyed consumers globally which automaker “will lead the future of electrified and autonomous vehicles.” 54% chose Tesla; the next highest response was Toyota at 8%. Though brand perception and actual competitiveness differ, such lopsided preference still speaks volumes.

I forecast Tesla capturing at least 20-25% share of a 100 million+ annual unit EV market by 2030, equating to ~20-25 million vehicles sold representing potential 6-8X growth from today’s output.

Projected Tesla Unit Sales Growth

Tesla’s capacity for continued gains remains formidable given today’s ~5% global EV share and <1% overall auto market penetration. Even if optimism gets pruned by competition, Tesla’s established network effects via vast charging infrastructure and loyal customer base provide strong competitive insulation.

Verdict: Tesla Remains a Top EV Pick After Correction

In totality, Tesla remains positioned tremendously well to dominate electric vehicles long-term. Though no longer the hypergrowth story warranting triple-digit earnings multiples, expanded profitability and cash generation justify a higher valuation than auto incumbents.

Execution risks certainly exist – the company must continually innovate and expand gross margins to justify premiums over giants like Toyota. Still, Tesla’s software-led approach to manufacturing enables aggregation of data to optimize efficiency in ways traditional players cannot match.

Thus, in my view as a seasoned industry analyst, Tesla stock appears very appealing for long-term investors at today‘s valuation. The recent drawdown provides an opportunity for those who missed the initial run-up to start positions before broader recognition returns amidst resuming growth curve acceleration.

Macro headwinds may cause some lingering volatility over coming quarters. However, the next decade’s electric vehicle boom means market-leading innovators like Tesla retain substantial runway ahead to multiply in value. I rate shares a firm "Buy" around today‘s prices.

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