Is Tesla Recession Proof? | The Motley Fool


If you invested $10,000 in You’re hereit is (TSLA -0.11%) public debut in June 2010, you’d be sitting on $1.94 million today. By comparison, the same amount invested in an index fund would have produced a much more modest total capital return, ranging from $30,000 to $42,000, depending on the benchmark the fund was designed to track.

Thanks to this breathtaking performance over the past 12 years, Tesla has earned an exceptionally loyal customer base from its shareholders. For this reason, the electric car and renewable energy giant has been one of the few tech-heavy companies to generate positive returns for investors over the past 12 months.

Thanks to a wave of headwinds such as rising interest rates, soaring inflation, supply chain issues and geopolitical unrest, tech giants Amazon and Microsoft have lost 27.9% and 17.7% of their value respectively since September 2021. Meanwhile, Tesla, which is largely subject to these same macroeconomic pressures, has returned shareholders a respectable gain of 22% over this same period.

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Can Tesla shares continue to challenge the broader market? Let’s take a look at both sides of the argument to find out.

Tesla’s value proposition: A battleground on Wall Street

If you sift through the glut of analyst research reports on Tesla stock, you’re sure to come away with the impression that Wall Street is divided on the company’s outlook.

On the bearish side of the ledger, for example, Tesla’s fair value estimate of $255 per share, per Morningstar, reflects the inherent uncertainty in the growth outlook for the electric vehicle market as a whole, as well as the ability The company continues to maintain an elite brand cachet in a space that is expected to attract many new competitors in the years to come. This lowball valuation also doesn’t attribute much net present value to Tesla’s renewable energy business or its growing robotics aspirations.

On the bullish side, Tesla’s 12-month forward price target of $374 per share, from research firm Argus, is imbued with the idea that the company will likely continue to dominate the emerging EV market for the remainder. of the decade, successfully branching out into other high-growth areas, such as robotics, along the way.

This belief is based on the fact that Tesla currently invests 19% of its gross profits in research and development, which represents one of the highest R&D expenditures (based on gross profits) within its group of companies. peers. In short, the bulls seem confident in Tesla’s ability to maintain a competitive edge, thanks to this high level of R&D investment.

Is this growth stock sheltered from recessionary pressures?

Now, Tesla’s stock hasn’t fully escaped the ravages of the 2022 bear market. Shares of the company are currently down just over 12% year-to-date. That said, Tesla stock has performed admirably overall in 2022.

What’s important to understand is that this relentless bear market has given a hatchet to nearly every tech-focused stock with a higher valuation in 2022. Tesla shares, however, have largely escaped this pullback. of the market in that particular asset class – despite the company’s actions. is currently trading at more than 51 times estimated earnings for 2023. Underscoring this point, shares of the electric vehicle giant have outperformed around two-thirds of its large-cap peers in consumer cyclicals this year.

What’s the secret to Tesla’s resilience amid a raging bear market? Simply put, Tesla’s loyal shareholder base, huge long-term opportunities in electric vehicles, renewable energy sources and robotic aspirations have shielded its stock from the worst bear market of 2022.

This is an intriguing sign for Taurus. In short, even this austere market does not accept the idea that Tesla’s competitive advantage will gradually evaporate or that it will fail to innovate in ancillary markets such as renewable energy and/or robotics.

So if you’re looking for a stock that can ignore the market’s attention to a possible recession, Tesla should be at the top of your list.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. George Budwell has no position in the stocks mentioned. The Motley Fool holds positions and recommends Amazon, Microsoft and Tesla. The Motley Fool has a disclosure policy.


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