EV (electric vehicle) titan Tesla (NASDAQ:TSLA) is among one of the most-discussed stocks on the social media platform Reddit. While TSLA stock has significantly gained mentions and is buzzing on Reddit, competitive headwinds and pressure on margins continue to pose challenges, limiting the upside potential.
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With this backdrop, let’s delve into this trending Reddit stock.
Is Tesla Stock a Buy or Sell?
Given the ongoing challenges, Wall Street analysts remain sidelined on Tesla stock. The stock skyrocketed during the first six months of 2023, led by its record deliveries. However, Tesla is consistently lowering its prices to push volumes amid growing competition, especially in China. The decline in its ASPs (average selling prices) is hurting its industry-leading margins and has not gone down well with investors.
Further, the company’s stock has dropped nearly 27% since it announced its second-quarter earnings. Tesla’s adjusted EPS increased 20% year-over-year, but lower ASPs led to a continued decline in its margins. In Q2, TSLA’s GAAP gross margin dropped by 682 basis points year-over-year. Further, it fell over 110 basis points on a quarter-over-quarter basis. In addition, the company’s operating margin decreased by 493 basis points year-over-year.
Tesla CEO Elon Musk trashed margin concerns. He added short-term variances in margins are “minor relative to the long-term picture.” Further, Musk believes that autonomy will help the company to recoup margins and make margin concerns “look silly.”
While Musk doesn’t see margin pressure as a concern, growing competition has forced Tesla to cut back the prices of vehicles and launch cheaper models.
All of these concerns have kept analysts on the sidelines. With 10 Buys, 13 Holds, and five Sell recommendations, Tesla stock carries a Hold consensus rating on TipRanks. However, given the recent pullback, the average TSLA stock price target of $253.77 implies a 17.8% upside potential from current levels.
The Bottom Line
Tesla undoubtedly looks like a solid long-term pick as it continues to outgrow its peers. Further, its leadership in the EV space, focus on cost reduction, new product development, vehicle autonomy, and continuous product improvement should support future growth. However, given the near-term competitive and margin concerns and analysts’ Hold consensus rating, investors should take caution before investing in Tesla stock.
