Tesla Trades at a Steep Discount to Historical Highs

Tesla is continuing to win the race when it comes to electric vehicles

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Feb 01, 2023
  • Tesla reported record fourth quarter 2022 revenue and surpassed analysts' projections for earnings.
  • The EV giant remains far more profitable than BYD, its counterpart in China.
  • Tesla has achieved a remarkably profitable business with cash reserves of $22 billion; a dramatic improvement from its near-bankruptcy state just a few years ago.
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Tesla (

TSLA, Financial) has made remarkable progress in the electric vehicle industry and continues to be a leading player due to the effort of its many engineers and workers as well as the capital raising and allocation expertise of CEO Elon Musk.

With or without Musk's direction (though I do hope he will come back from the Twitter black hole), I believe Tesla stands a good chance of holding its position as the top EV comany in the U.S. for many years - after all, when it comes to consumer goods like automobiles, the product speaks for itself. Tesla's strong financial performance and outlook continue despite the recent declines in its share price. Speaking of the share price, has the stock become undervalued compared to the company's growth prospects?


TSLA Data by GuruFocus

Strong growth despite stiff competition

Tesla has become a household name in the world of electric vehicles, but it is now facing strong competition from other automakers. Companies like Volkswagen (

VWAGY, Financial) , General Motors (GM, Financial), Toyota (TM, Financial) and many more have all announced plans to launch electric vehicles comparable to Tesla's offerings. This increased competition means that Tesla will have to stay ahead of the curve in terms of technology, design and features if it wants to remain the leader in the U.S. EV market.

For now, Tesla is looking good when it comes to sales momentum. Despite the unfavorable foreign exchange rate, Tesla had an impressive fourth quarter in 2022, with revenue reaching $24.3 billion - a 37% increase from the same period a year earlier. Despite the ongoing economic fallout from the pandemic, the company reported a net income of $3.69 billion in the fourth quarter - an impressive 59% surge compared to $2.32 billion a year ago. The positive news included an uptick in deliveries and growth in other business areas. According to the latest figures, vehicle deliveries rose significantly by 31%, totaling 405,278 during the quarter.

Model 3 and Model Y delivery rose by 31%, whereas Model S and X shipments surged by 44% in the fourth quarter of 2022. To stay on top, the company revealed its plans earlier in January to reduce prices by up to 20% for all its models. Tesla acknowledged that its prices were too high for customers, and taking into account high interest rates and the possibility of a recession, as well as increasing competition especially in China, Tesla decided to lower its prices despite potentially reduced profits.

Apart from these numbers, Tesla continues to invest for growth. For example, it is investing $3.6 billion to its Nevada Gigafactory. It will also be dedicating a semi-truck plant and cell manufacturing plant in Nevada, along with a plant for 4680 lithium-ion cell manufacturing.

Although Tesla is still getting ready to start production at the Nevada site, management estimates that once the factory reaches its full capacity, it will be able to manufacture 2 million electric vehicles. The additional investment will create about 3,000 jobs and indicates that Tesla is still in a very strong competitive position.

Competition is fierce

Demand for Tesla's electric vehicles is at an all-time high despite fierce competition in the market. GM is investing a whopping $35 billion in EVs and autonomous vehicles through 2025 to stay competitive with Tesla. Ford (

F, Financial) is investing $50 billion in electric vehicles. This would increase its output by 600,000 units annually by 2023, where electric vehicles would make up most of its vehicle production.

Besides the U.S. automakers, the competition from China and other foreign manufacturers is also heating up. Tesla is expecially concerned with China's largest EV maker BYD Co (

BYDDF, Financial), which sold around 1.85 million plug-in electric cars in 2022, tripling sales from the prior year. However, Tesla remains far more profitable than BYD. Tesla produced a net profit of about $12.6 billion in 2022 for a margin of roughly 15%. Another Chinese EV manufacturer, NIO (NIO, Financial), is aggressively expanding to the European market and has set up shops in several countries.

Tesla is still seeing its sales increase, but it will have to continue fighting. It faces tough competition from many other places, especially with governments getting involved now in providing incentives for EV adoption.


Tesla might not have operated quite as smoothly as investors would like over the last few months, but recent results confirm that the company is moving in the right direction. Investors have been worried about Musk's involvement with Twitter and his ventures in SpaceX. The fear is that he is stretching himself thin. However, it turns out that he apparently wasn't as essential to these companies as many investors feared. Despite the popular misconception that he's the engineer that makes the cars and rockets, Musk's skills actually lie in business and capital allocation, and now that Tesla is profitable, those skills aren't as essential as long as the systems put in place keep running smoothly.

The bottom line is that Tesla is still churning out incredible results and is much more profitable than peers. The company's focus on future innovation is worth emulating. Thus, I think the stock is attractive after its recent pullback.


I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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