Subpar Earnings Confirm Tesla Stock Isn’t the Best EV Play
For years, Tesla (TSLA) has been the untouchable king of the global electric vehicle industry. But its subpar third-quarter earnings report proved that’s no longer true – and that other EV stocks are rapidly stealing Tesla’s thunder.
Tesla reported quarterly numbers last night. They weren’t very good. Earnings beat, but that was about it. Revenues, gross margins, and earnings before interest, taxes, depreciation, and amortization (EBITDA) missed. And those come on the heels of Tesla missing Q3 delivery numbers just a few weeks prior. Worse yet, Tesla’s CFO said that it would fall short of its 50% delivery growth target for this year. And CEO Elon Musk conceded that backlogs in China and Europe are experiencing some weakness.
Clearly, something is amiss in Tesla land.
That “something” isn’t a slowdown in electric vehicle sales, supply chain hiccups, or higher battery metal costs. It’s Tesla losing market share to new EV industry competition.
That’s why, in our flagship investment research advisory Innovation Investor, we’ve been trimming our stake in Tesla stock while adding other EV companies – those gaining market share from Tesla.
Here’s a deeper look.
Not an EV Problem
It’s pretty easy to look at all those misses in Tesla’s quarterly earnings report and blame the macroeconomic environment. After all, the economy is slowing and is on shaky footing right now. Surely, that’s why Tesla’s growth is ebbing.
But it’s not.
If slowing demand for EVs were the issue, then why are other EV makers growing much faster than Tesla?
Cox Automotive just published its Q3 auto market sales report for the U.S. And in it, we can see that Audi e-Tron sales rose 208% year-over-year. Chevy Bolt sales rose 226%. Mini Cooper EV sales rose 125%, and Polestar 2 sales rose 243%.
By comparison, Tesla Model 3 sales rose just 67%, while Model Y sales rose just 20%.
Tesla is one of the slowest-growing EV makers in the world these days. And as a result, the company is losing market share.
In the third quarter of 2021, Tesla controlled about 71% of the U.S. EV market. In the third quarter of this year, that share has fallen to under 64%.
Sure, 64% is still a huge number. But the trend is not Tesla’s friend. And we don’t think it will be friendly for the foreseeable future. Other EV stocks will keep stealing Tesla’s thunder.
This Is a Tesla Problem
For a moment, ask yourself: What factors would you consider when buying an EV?
Probably price, brand equity, accessibility, and performance, right? Well, here’s the problem with Tesla. It used to win against EV competitors on all four factors, and now, it only wins on one.
Tesla’s Model 3 used to be the cheapest, quality electric vehicle in the market. Not anymore. It runs about $47,000 before EV incentives are applied. Fisker’s (FSR) soon-to-launch Ocean SUV runs nearly $10,000 cheaper.
So, price-sensitive, prospective EV buyers are likely to move away from TSLA in the coming months.
Tesla used to be the coolest brand in electric vehicles. But due in part to product commoditization (the premium Model S looks just like the quasi-affordable Model 3), Tesla’s brand equity is plummeting. Now, the “cool” crowd has all moved on to the likes of Rivian (RIVN), Lucid (LCID), Polestar (PSNY), and more.
Similarly, Tesla used to have the highest-performing electric vehicles in the market. And while the company’s EVs are still top-of-the-line, they finally have competition from Lucid. Its signature Air EV has significantly longer range than any of Tesla’s models.
To be sure, Tesla is still making way more EVs than anyone else. And if you’re in the market for an electric vehicle, you’ll likely have to wait a significantly shorter time to get your hands on a Tesla than, say, a Rivian truck.
Tesla still dominates on accessibility. But that’s about all it dominates on these days in the EV world. Its long-held price, branding, and performance advantages no longer exist. As a result, we believe that price-sensitive, brand-conscious, and performance-driven prospective EV buyers will increasingly opt for Lucid, Rivian, Audi, Mercedes (MBGYY), and BMW (BMWYY) EVs over the next few years.
As they do, Tesla’s growth narrative will continue to slow. But other EV stocks will start to accelerate higher.
The Final Word on Tesla Stock
We may be one of the only analyst teams out there that’s foaming-at-the-mouth bullish on the EV Revolution, yet not bullish on Tesla stock.
Seems odd. But our fundamental observations of the electric vehicle industry are that everyone wants an EV these days – but not necessarily a Tesla. That makes us bullish on other EV stocks.
For what it’s worth, we were also one of the only analyst teams out there that was bullish on Tesla stock back in 2018, when everyone was calling the company a cash-burning flop.
This is kind of our “thing.” We don’t like to invest with the crowd. We like to invest against it. That’s where the big money is made.
So, which EV stocks in particular are we bullish on these days?
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.