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Tesla (TSLA) stock is up more than 35% over the last three months, and has recouped its 2024 losses to turn positive for the year. While the shares are still underperforming the markets, they have recovered impressively, as at one point TSLA was the worst-performing stock of the S&P 500 Index ($SPX) – a dubious title that now belongs to Walgreens Boots Alliance (WBA).
The third quarter of 2024 is almost over, and we're barely a week away from the final quarter of the year, where - among other key events - markets will need to brace for the U.S. presidential elections. Here’s the Q4 forecast for Tesla, plus the key events that investors should watch out for in October.
Why October is a Crucial Month for Tesla
October could be a crucial month for Tesla investors, as we have several market-moving events lined up.
At the beginning of the month, the Elon Musk-run company will release its Q3 delivery report. While Tesla’s deliveries fell YoY in the first half of the year, optimism is building ahead of the Q3 report, with Barclays predicting quarterly deliveries of 470,000 - which is higher than the Street's estimate, and represents a YoY rise of 8%.
The next key event will be the launch of the robotaxi on Oct. 10. The much-delayed product missed the most recent deadline of Aug. 8, as it wasn’t quite ready. The event will help Tesla showcase its autonomous driving capabilities, which Musk has said accounts for the bulk of the company’s valuation.
Subsequently, Tesla will step into the Q3 earnings confessional, where its margins and commentary on the demand environment will be closely watched, along with other key metrics. Notably, Tesla’s margins – once the envy of the industry – have nosedived, as it has resorted to price cuts to spur its sagging sales.
Tesla Stock Q4 Forecast
Sell-side analysts are bearish on Tesla stock heading into Q4, with a consensus rating of “Hold.” Of the 36 analysts covering TSLA, 10 rate it as a “Strong Buy,” and 1 as a “Moderate Buy,” while 18 analysts rate the EV giant as a “Hold,” and the remaining 7 as a “Strong Sell.”
Tesla trades significantly above its mean target price of $201.60 – but then, it's not uncommon for the polarizing stock to trade above what the average analyst thinks it is worth. Notably, while Tesla bears tend to value the stock as an automotive company – a business that has sagged in recent quarters amid the demand slowdown and price war – bulls see it as a tech play.
Previously, Musk has touted autonomous driving as the biggest driver of the company’s current valuations, but he has since hyped other tech products, like the Dojo supercomputer and Optimus humanoid. While Musk seldom shies away from making flamboyant claims, he believes that Optimus alone could make Tesla a $25 trillion company.
All of that said, as artificial intelligence (AI) goes mainstream and more hardware products become AI-enabled, companies like Tesla could be among the biggest beneficiaries, as it has both software and hardware capabilities.
Is TSLA Stock Still a Buy?
Tesla has always been a story – with both believers and doubters. For bulls, the stock is a perma-buy, while bears tend to value TSLA at a fraction of its prevailing prices. In terms of current valuations, Tesla stock might appear stretched, as its next-12 months (NTM) price-to-earnings (PE) multiple of nearly 91x is not only the highest among its “Magnificent 7” peers, but even higher than the company’s average multiple over the last three years.
That said, Tesla’s PE multiple looks elevated because its profits have been weak due to the EV price war, and the stock’s NTM price-to-sales multiple of 7.53x is actually a bit lower than the 7.89x that it has averaged over the last three years.
The question might be - shouldn’t Tesla trade at a discount to its historical multiples? It's a fair question; not only is Tesla struggling for topline growth, but its industry-leading operating margins have also withered away. To be sure, Tesla’s automotive margins might not rise to their previous highs anytime soon, given the current overcapacity. However, Tesla still has several growth drivers, including the low-cost platform which the company might announce sometime this year – with some predicting it could be revealed during the robotaxi event next month.
Tesla defied pessimists to become the biggest EV company on the planet, while also achieving enviable margins. While a lot of optimism over a second-half delivery rebound, robotaxi, and low-cost platform has been baked into Tesla’s stock price after the recent rally, I believe it still has room to run higher.
The November presidential elections remain a wild card for EV stocks, given Republican nominee Donald Trump’s stance towards green energy. However, as smart a businessman as he is, Musk seems to have hedged his bets by backing the former president.
On the date of publication, Mohit Oberoi had a position in: TSLA . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
