Yahoo Finance Considering Buying Tesla Stock? This May Be A Better Alternative
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Tesla Inc (NASDAQ:TSLA) is on investors’ radar after the company's shareholders approved CEO Elon Musk’s $56 billion compensation package, a move analysts believe could spark the beginning of a possible rebound in the stock, which is down 25% so far this year amid growth concerns and falling demand for electric vehicles. After the shareholder approval, Musk wrote on Twitter that Tesla's "Master Plan 4” would be "epic." Master plans have played a key role in the company’s product and business strategy in the past. Tesla Master Plan 3 was revealed back in 2023 and touted a focus on AI capabilities to develop fully self-driving cars, a transition away from fossil fuels, and scaling the company business to "extreme size."
Tesla bulls are also back in the limelight. Cathie Wood, who owns a $910.32 million stake in the EV maker through her ARK Investment Management, recently said the stock will hit $2,600 by 2029, while her bull case pegs the stock price estimate at $3,100. Ms. Wood’s bear case price target —$2,000 — represents a whopping 982% upside potential based on TSLA’s closing price of $184.86 on June 18.
Dan Ives of Wedbush Securities, another Tesla bull, said the pay package issue resolution could begin a new chapter in Tesla’s growth story. He reiterated an Outperform rating on the stock with a $350 price target.
Musk's Pay Package Won't Solve Tesla's Growth Problems
However, Tesla skeptics believe even if Elon Musk succeeds in getting his multibillion-dollar pay package, the core issues haunting Tesla won’t get resolved on their own. They believe investors are banking too much on the upcoming Robotaxi event scheduled for Aug. 8, in which the company is expected to reveal its much-hyped Robotaxi, which Musk claimed would be without steering wheels or pedals. Tesla's renewed focus on Robotaxis comes after Musk reportedly canceled plans to build a mass-market, affordable EV in the range of $25,000.
Elon Musk is likely targeting the premium Robotaxi market, as the affordable EV segment is being dominated by Chinese competitors who are rolling out electric cars with budgets as low as $10,000 (for example, BYD’s Seagull EV, which was revealed earlier this year).
Robotaxis "Years Away" from Mass Adoption
But analysts don’t expect Robotaxis to solve Tesla’s growth problem. According to a Wall Street Journal report, RBC Capital analyst Tom Narayan thinks Robotaxis are likely "years away from mass-market adoption."
And then there’s competition, both at home and abroad. Last year, Chinese EV maker BYD Co. surpassed Tesla to become the world’s (not only China’s) biggest EV company.
Tesla's Valuation
Over the past 18 months, Tesla has missed its sales estimates and announced price cuts, layoffs, and strategy shifts. In the first quarter, Tesla’s profit fell 55%. Wall Street expects Tesla’s earnings to fall about 17% this year. As of June 19, the stock is still trading at 74x forward earnings, much higher than the industry average multiple of 15.88.
Tesla is in a major transition phase, which, if it hits the mark, would take several months if not years to bear fruit. That’s why there are better alternatives to look at if you are considering buying an EV stock.
General Motors Co (NYSE:GM): A Better Buy Than Tesla
General Motors Co (NYSE:GM) has become a formidable competitor to Tesla in the EV market while its gasoline engine continues to grow. Unlike Tesla, General Motors can play on both ends of the market, ramping up investments in internal combustion engine (ICE) cars amid strong demand as well as producing affordable EVs and positioning itself for the future. General Motors recently pledged to invest more in gas-powered trucks and sport-utility vehicles and indicated a decrease in futuristic projects like robotaxis. General Motors' iconic trucks, Chevrolet Silverado and GMC Sierra, raked in strong sales in the first quarter as competitors Ford and Stellantis lost ground.
The stock recently hit 52-week highs as it announced a new $6 billion stock buyback program and increased its dividend by 33%.
Analysts believe General Motors is well on its way to becoming one of the biggest EV companies in the world. General Motors expects to produce 200,000 to 250,000 EVs this year, matching Wall Street's consensus estimate. The company recently launched Chevrolet Equinox, while its low-priced version is expected later this year. GM's EV production jumped 74% in the first quarter on a quarter-over-quarter basis.
General Motors reported strong Q1 results in April and increased its adjusted pretax profit outlook for the year from $12.5 billion to $14.5 billion, up from $12 billion to $14 billion. Net income in the year is now expected between $10.1 billion and $11.5 billion, above its previous guidance of $9.8 billion to $11.2 billion.
Despite these growth catalysts and earnings upside, General Motors is trading at a forward P/E of 4.99, much lower than the industry median multiple of 17. This multiple is paltry when compared with Tesla's (74). With a dividend, a strong pipeline of EVs as well as a growing gasoline cars business, General Motors is a much better stock to buy when compared with Tesla.
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