The Tesla Dilemma: Buy, Hold, or Seek Alternative Opportunities?

One of the key factors is the positive sales performance in China. Recent data released by the China Passenger Car Association (CPCA) shows that Tesla sold 78,856 vehicles in the Chinese market in November, including 5,366 vehicles for export. This marks a new high for Tesla's sales in China for the year, and this momentum continues. According to Reuters, Tesla China sold 21,900 vehicles in the first week of December, setting a new weekly record for the fourth quarter.

Anticipating an improvement in performance, the stock price has also shown a commendable performance. Tesla's management predicts a delivery growth of 20-30% for the year 2025, with China emerging as a significant market for the electric vehicle company, contributing to a substantial portion of the company's growth. In the third quarter, Tesla produced 469,796 electric vehicles, primarily Model 3/Y, and delivered 462,890 to customers, resulting in a year-over-year increase of 6.4% in total deliveries.

Tesla continues to lead U.S. automakers in gross margin, with a 19.8% gross margin in the third quarter, an increase of nearly 2 percentage points quarter-over-quarter, especially with the rise in sales and positive delivery trends in China.

Wall Street has fundamentally changed its perception of Tesla, now placing greater faith in the company's AI narrative. This belief encompasses not only the significant profit potential of autonomous driving technology but also the future market for Tesla's Optimus robots. The shift in perception regarding autonomous driving can be attributed to the release of Tesla's Full Self-Driving (FSD) Beta version 13, which has received overwhelmingly positive feedback across the board.

As a result of this positive reception, investment banks have been raising their target prices on Tesla stock. Institutions such as Goldman Sachs, Deutsche Bank, Bank of America, and Morgan Stanley are among those that have increased their price targets, reflecting growing confidence in Tesla's technological advancements and market prospects.

In the recent quarterly report, Tesla's revenue was 79% from its automotive business, with the remaining income coming from energy production and sales (9%) and services (11%). As an automotive company, Tesla's valuation far exceeds that of any car manufacturer, with its Non GAAP P/E (FY 1) reaching an astonishing 186x.

Even under the most optimistic assumptions, if the adoption rate reaches 100%, it is difficult to see how FSD alone can justify Tesla's current valuation premium. However, Tesla plans to launch a fully autonomous taxi business, if Tesla takes a dominant position and completely disrupts and captures the business of Uber and Lyft, which could create greater value for FSD. But Tesla is not without competitors, as Alphabet Inc.'s Waymo is also expanding rapidly.

Apparently, sales growth in the later stages largely depends on the successful launch in the robotics sector. Although the impact of Optimus could be very significant, it is anticipated that humanoid robots will initially be a very niche product, making valuation quite challenging.

From a recent valuation perspective, the market seems to be expecting not just optimistic growth but a complete disruption of the entire automotive model. Soaring stock prices have attracted speculators and risk-takers, which means that one of the biggest headwinds Tesla faces could actually be profit-taking itself. Any correction could trigger a significant consolidation of Tesla's stock and expose investors to the risk of a contraction in price-to-earnings ratios. So how should investors trade?

Investors can choose to continue holding if have a bullish outlook, as Tesla still has many event-driven opportunities in the first half of next year, such as FSD entering China and the launch of MODEL Q in 2025.

Covered Call: If investors have a long-term bullish outlook on Tesla's stock but anticipate that the share price may experience sideways volatility in the short term due to market sentiment, they can adopt a covered call option strategy. By employing this strategy, investors can earn premium income from selling the call options and potentially capitalize on upward movement of the stock price.

– Single Option: Investors can choose to buy out of the money call or buy out of the put money option(long-dated as the time decay / theta is small; hence, the option premium amortized every day won't be high); when the direction is correct, either all the way up or all the way down, especially, when the spot cross the strikes, then the clients can unwind (sell back) the option to market because the option is full of extrinsic value.

– Sell Put: If an investor is bullish on Tesla’s stock price, believes it will not decline significantly, and has sufficient capital, they could sell put options with a lower probability of being exercised (out-of-the-money puts). This allows them to collect the premium while being prepared to purchase the stock at a predetermined lower price if the put options are exercised. This approach can be advantageous if the stock does not fall below the strike price of the sold puts, as the investor would retain the premium without having to buy the stock. When put option exercise, then buy the underlying and sell call option to earn premium. This is more suitable for stable stocks with lower volatility. Please note that these strategies may involve higher risks, significant losses may occur if Tesla's volatility continues to rise or price drops substantially.

– Bull Call Spread: If an investor expects Tesla’s stock price to rise but only within a limited range, they can construct a bull call spread. Through this strategy, the investor can leverage the stock's potential upward movement for profit, while the sale of call reduces the cost of purchasing call. This helps in controlling risk and maximizing potential returns within a defined price range.

There are also many leveraged ETFs available for Tesla, some of the most popular include:

Other ETFs include:

◦ Long:

◦ Short:

◦ Covered Call: