S&P 500 slips, but losses kept in check as Nvidia climbs ahead of results
On Tuesday, Guggenheim reiterated its Sell rating on Tesla (NASDAQ:TSLA) stock, as the electric vehicle giant, currently valued at over $1 trillion, prepares to roll out new driver assistance features in China that are similar to its Full Self-Driving (FSD) suite. According to InvestingPro data, Tesla’s stock has shown significant volatility, with a 72% return over the past year despite recent headwinds. The update, which is expected to be delivered via an over-the-air (OTA) update in the coming days, has been met with skepticism by Guggenheim analysts due to concerns about Tesla’s ability to price for FSD in the competitive Chinese market and the challenges with developing a robust regional build due to high compute and data export controls.
Despite the launch potentially supporting sales volumes and future-proofing the product purchase, Guggenheim analysts remain cautious. They note that Tesla faces stiff competition in China from local automakers such as BYD (SZ:002594) and Li Auto (NASDAQ:LI), whose Navigate on Autopilot (NOA) features are becoming increasingly standard. While Tesla maintains strong financials with a current ratio of 2.02 and more cash than debt on its balance sheet, InvestingPro analysis indicates the stock is currently trading above its Fair Value, with 13 analysts recently revising their earnings expectations downward. This competition is driving the price that can be charged for Advanced Driver-Assistance Systems (ADAS) features towards zero.
Additionally, analysts point out that Tesla’s data training advantages in the United States do not carry over to China. CEO Elon Musk has indicated that the training of FSD in China has relied partly on open source online images and videos, rather than proprietary vehicle data. This approach places Tesla at a disadvantage compared to local competitors who do not face the same restrictions on vehicle data usage.
Despite these challenges, the potential for deferred revenue recognition from the more than 2 million Tesla vehicles in China, even with historically low FSD attachment rates, is a factor that Guggenheim suggests could be significant in the first quarter. With revenue of $97.69 billion in the last twelve months and a gross profit margin of 17.86%, Tesla continues to demonstrate its market strength. Shares of Tesla were trading higher in premarket activity following the news, reminiscent of a similar instance last year when speculation led to a significant uptick in Tesla’s stock value on April 29, 2024. For deeper insights into Tesla’s valuation and 18 additional exclusive ProTips, visit InvestingPro.
In other recent news, Tesla Inc. has announced several significant developments. The company has agreed to acquire specific assets and staff from the insolvent German supplier Manz AG, which is undergoing insolvency proceedings. This agreement includes the acquisition of Manz’s Reutlingen site and over 300 employees, although approximately 100 employees will lose their jobs. In another development, Tesla is preparing to release a software update in China to offer driver-assistance features similar to those in the U.S. Full Self-Driving package. This update will allow Tesla owners to use features such as traffic signal recognition and lane changes, although it still requires human supervision.
Furthermore, Tesla is recalling over 376,000 Model 3 and Model Y vehicles due to a potential issue with the electronic power steering assist, which could lead to a loss of power steering. Additionally, Italy’s antitrust agency has launched an investigation into Tesla, among other automakers, over allegations of misleading consumers about electric vehicle performance. The probe focuses on claims regarding driving range, battery capacity degradation, and warranty limitations. Lastly, Tesla’s CEO, Elon Musk, is advocating for the early deorbit of the International Space Station, aiming to redirect resources towards Mars colonization.
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