Will Tesla hit another bottom?

On 20 April, SpaceX launched the most powerful rocket system ever built by man from its Starbase facility in South Texas. The 'super heavy' class Starship is capable of delivering up to 150 metric tons of payload and will mark a significant milestone for Elon's reusable launch system development program if successful. After a brief halt due to frozen valve issues, the Starship finally blasted off but exploded 4 minutes into flight after its booster failed to separate.

The three-word summary: it blew up.

Starship's failed attempt, coupled with the company's latest less-than-expected quarterly earnings report, saw Tesla's stock price plunge by nearly 10% the following day. This begs the question among investors on whether the stock is nearing a potential bottom similar to the one we saw early this year.

To answer this question, let us revisit the time Tesla's stock price fell to its lowest point in almost 3 years, at $101.81 on 6 January 2023.

- Hyperinflation and incessant rate hikes dampened auto consumption, contributing to a series of price cuts by Tesla to boost sales and keep up with competition

- Tesla reported its third consecutive quarter of weaker-than-expected deliveries in its Q4 2022 earnings report

- Questionable stock sales and distraction from the Twitter takeover added to investors' concern and discontent over governance

These factors foreshadowed the end of Tesla's high growth and brought about the price bottom in January for new investors to take position.

However, the present scenario is different. Inflation has fallen and the Fed's interest rate hike cycle is coming to an end, signalling a shift towards a better macro environment for the stock. Despite Q1 margins reporting less than expected, quarterly sales growth remains high year-over-year, and the inventory overhang problem is no longer apparent. The air around the Twitter acquisition has also cleared, with Zhu replacing Musk on the front stage during a relatively stable period for management.

Given Tesla's current macro and fundamentals are more favourable than at the beginning of the year, there is a good chance stock prices will remain stable before reaching a new bottom.

Nevertheless, falling 9% overnight has brought Tesla's stock price to a critical level on the daily chart - March low of $163.91.

This is a significant support level from a technical perspective. Simply put, a significant drop below the March low could trigger a continued move downward, but a rebound above the 30-day and 60-day moving averages would indicate that the stock is beginning to stabilize, which is exactly what happened last month.

Following the less-than-expected Q1 earnings report, analysts have cut their price targets for Tesla but maintained their 'Buy' ratings.

Barclays, for instance, have downgraded its price target from $275 to $230 with a 'Buy' rating. Analysts noted that the pursuit of volume growth through price cuts is expected to come at the expense of margins, but the company's vertically integrated scale could offset some of the downside.

Wedbush have also downgraded price target from $225 to $215, with a 'Hold' rating. Analysts remain very bullish on the company's long-term growth and think Tesla delivered 'mixed results' in its latest earnings report, while acknowledging that the 'elephant in the room' is declining margins.

Other investment banks have also adjusted their targets & ratings:

- Goldman Sachs lowered its price target from $210 to $185, maintaining a 'Buy' rating.

- Wells Fargo maintained its 'Buy' rating on Tesla and lowered its price target from $190 to $170.

- Deutsche Bank lowered its price target on Tesla from $250 to $200, maintaining a 'Buy' rating.

- Mizuho lowered its price target on Tesla to $230 from $250.

- Morgan Stanley lowered its price target on Tesla from $220 to $200, maintaining a 'Hold' rating.

- J.P. Morgan maintained its 'Sell' rating on Tesla, lowering its price target to $115 from $120.

Over the past three months, 31 Wall Street analysts have rated Tesla, and many still believe the stock can outperform the broader market. This puts the overall target price at an average of $202.92.

And of course, the most optimistic of them all is still Tesla's most faithful investor, star fund manager Cathie Wood of Ark Investments.

Despite Tesla's stock price plunge following its lacklustre earnings, Wood remains bullish on the company and believes that with the development of self-driving taxis, Tesla's shares may reach $2000 in five years. Ark Investments also updated their pricing model, which showed that in the benchmark scenario, Tesla's expected value per share in 2027 will reach $2000, 1127% higher than Tesla's closing price on Thursday.

According to Ark's model, the 'expected value' is the average of all 1 million simulations. In a bullish (75th percentile) and bearish (25th percentile) scenario, Tesla's expected value per share in 2027 is approximately $2,500 and $1,400 per share, respectively.

Cathie also puts her money where her mouth as her funds, ARKK and ARKW, purchased a combined 256,000 shares of Tesla stock at the closing price of $162.99, amounting to a significant sum of $41.7 million (approximately RMB 287 million). This demonstrates her commitment to her beliefs in the company's future growth.

So, is Tesla's stock price cheap or overvalued today? The answer depends largely on the company's ability to sustain its past earnings growth rate.

Wall Street's earlier projections indicated that Tesla's revenue could increase by almost 40% in 2023, with more bullish analysts even estimating a growth rate of 50% that could sustain for several years.

If Tesla manages to maintain its profitability and achieve the projected revenue growth, it will contradict the views of the short-sellers, making the current stock price level an opportune time to invest.

Despite Musk banking on fully automated driving (FSD) as Tesla's next big revenue driver, the timeline for FSD rollout remains uncertain, prompting doubts and comparisons to the fable of the boy who cried wolf.

On the other hand, Kim Forrest, the chief investment officer at Bokeh Capital Partners, believes that some investors are not investing in Tesla as a company, but rather in its enigmatic CEO, Elon Musk.

As such, even if Tesla fails to launch some of its ambitious projects such as FSD, Cybertruck, or a more affordable electric car this year, it may not affect the true believers' faith in Musk and Tesla.

Although Tesla's latest earnings report fell short of expectations and the market may penalize the stock in the short term, it presents an opportunity for long-term investors or those who have unwavering trust in Tesla to purchase the stock at a discount.

Afterall, Tesla's stock has experienced significant and rapid surges in the past, which proves that the stock can be volatile but potentially lucrative for investors.