Tesla is down 30%! Are the shares a stunning buy?

Tesla (NASDAQ: TSLA) shares are now 30% cheaper than at the start of 2021. It’s a sizeable discount that has piqued my interest as a value seeker. Today the shares are six times higher than in March 2020, having jumped from $100 to over $600 apiece.

The electric car giant has had a pretty torrid past few months though. So what are its prospects for the future? Is it a bargain for me at these levels or just another tech bubble to avoid?

Tesla share price ups and downs

At the start of the 2021, headlines focused on how Tesla had overtaken Facebook to become the fifth-largest US company by market cap. 

Such rocketing share price growth has reversed in recent weeks, and Tesla’s market cap has settled from a high above $800bn to under $600bn.  Tesla still maintains incredible retail investor support and boasts legions of fans. Its products remain desirable, partly from all of their market-leading gadgets and partly from the highly charismatic CEO Elon Musk.  

Musk’s disruptive attitude, whether that’s in building battery storage farms or investing billions of company cash into Bitcoin, has garnered him attention worldwide. And yet I still have significant concerns about the business fundamentals.

Bullish

Cathie Wood, the head of ETF issuer and fund manager ARK Invest recently placed a $3,000 target price on Tesla shares. But it’s difficult to see where such spectacular valuations are coming from. 

Tesla’s economic moat is failing. In fact, it’s beset on all sides. Firstly by start-ups like NIO, which are swooping in to siphon off some of the day-trader excitement. And secondly by more profitable legacy car manufacturers with far better supply chains. These include Mercedes and Volkswagen. 

It’s been widely reported that Tesla managed its first full-year of profit in 2020: $721m against a loss of $862m in 2019. But these numbers were heavily reliant on Musk selling carbon credits to other manufacturers, not from actual car sale profits. 

Tesla total recall

Critics have long savaged Tesla for its safety record, but these concerns were swept aside in the wake of its soaring share price. 

And Musk’s $1.5bn Bitcoin buy, as well as accepting the cryptocurrency in payment for its vehicles, certainly helped to turn headlines away from Tesla’s struggles in China. 

Lest we forget: in early February Tesla was forced to undergo its third product recall in under a year. This time, the 36,126 of its Model S and Model X cars were recalled for touchscreen problems. Germany’s automotive regulator is also investigating the company over similar failures. In November 2020 Tesla recalled up to 48,000 Model S and Model X vehicles over suspension issues. 

The wider market

Looking at sales data, the wider trends are obvious. January 2021 figures from the Society for Motor Manufacturers and Traders paint a stark picture. Sales of petrol vehicles plummeted more than 50% year on year. And battery-powered electric vehicles saw a 54.4% rise. 

Electric vehicles only make up 6.4% of the total car market share, but that is up from 2.7% in 2020. So the transition is still in its early stages. I like to buy companies I think will be market leaders in emerging fields. 

So will Tesla lead us there? 

It might. But the competition is catching up fast. I would caution that with tight profit margins, more rivals and concerns about product safety issues, Tesla shares could fall further.