Saturday, June 15, 2024

Tesla has chance to ‘grow their market share even more’ thanks to EV startups faltering and legacy automakers focusing on hybrids

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Tesla has had a rough 2024, with its shares down 34% year to date. But the electric-vehicle space in general is having a difficult time, and, relatively speaking, Elon Musk’s carmaker is sitting pretty, believes one industry observer. 

CFRA automotive analyst Garrett Nelson, speaking to Fox Business this week, noted that Tesla rival Fisker recently hired restructuring advisors amid talk of a possible bankruptcy. And major automakers, he added, are turning their focus more to hybrids—which give owners greater fuel efficiency without the range anxiety—as EV sales growth slows down. 

“That really opens up a lane for Tesla to grow their market share even more in the coming years,” Nelson said. 

While Musk’s carmaker faces challenges in China, where EV competition is intense, Nelson said, “we kind of view Tesla as the best house on a bad block in the Western market.” 

Another sign of that “bad block” was Tesla rival Rivian—amid doubts about its long-term prospects—recently announcing it would delay construction of a factory in Georgia and save money by instead building its upcoming new models at its existing plant in Illinois.

“There’s a lot of distress taking place in the EV industry,” Nelson said.

Of course, Tesla had its own existential struggles as an EV startup not so long ago. 

But Tesla today, Nelson said, “is a lot different than the company of three or four years ago. The company has an investment-grade balance sheet. They’re sitting on more than $29 billon of cash, hardly any debt.”

One thing that’s changed since then is Musk buying Twitter, now X, and going on to voice or amplify sometimes controversial positions on the platform.

On Thursday, Ross Gerber, CEO of Gerber Kawasaki Wealth & Investment Management, voiced frustration with Musk’s leadership and public behavior while speaking to Yahoo Finance.  

“The original story that I think most investors bought into with Tesla didn’t really include Elon and Twitter…For a long time, we all hoped that it really wouldn’t affect Tesla and the demand for its products,” Gerber said. “We all know that that has now happened. The demand for Tesla products is obviously lower. They’ve had to discount and do many things that hurt margins and returns and, ultimately, profits for Tesla.”

As for Nelson, when asked if Musk’s “erratic and compulsive behavior” had played a role in the stock’s decline, he answered, “Of course it does. The stock price reflects all available information regarding the company, including Musk’s behavior.” 

But, he argued, the pullback in Tesla share was overdue: “If you look, last year Tesla shares more than doubled, and so for the stock to have a 30% pullback or so is not all that surprising.” 

His firm has bought the dip, he said, with a target price of $275, up from $164 today.

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