Stock Market

TSLA and the Tesla Cybertruck: A Potential Game Changer or Overhyped EV?

There are some indications that Tesla’s (NASDAQ:TSLA) Cybertruck could become a huge hit that will also cause the demand for the other vehicles to soar for TSLA stock. However, the EV’s specifications are also less impressive than what CEO Elon Musk originally promised, while the Cybertruck is facing serious competition from Rivian’s (NASDAQ:RIVN) R1T and Ford’s (NYSE:F) F150 Lightning.

Moreover, Tesla faces multiple additional threats, while the valuation of TSLA stock remains quite elevated. Given these points, I rate the shares as a “Hold” at this point. I urge investors to wait for extensive Cybertruck sales data and indications about Tesla’s ability to overcome its competition and other threats before buying its shares.

Cybertruck’s Mixed Outlook

The Cybertruck’s specifications are much less impressive than Musk’s original aspirations for the EV, which he outlined in 2019. In the latter year, Musk stated that the massive EV “would start at $39,900, be available in late 2021, have a payload of 3,500 pounds in a 6.5-foot bed, and a tow rating of up to 14,000 pounds max range of 500+ miles for the top-end version,” Elektrek noted. Instead, as of now, Cybetruck “starts at $79,990…. has a payload of 2,500 pounds in a 6-foot bed, a tow rating of up to 11,000 pounds, and a range of 340 miles, or 470 with an additional battery.”

Meanwhile, Cybertruck is facing significant competition from Rivian’s R1T, which, judging by online reviews, seems quite beloved by consumers and the automotive media. Additionally, the number of F15 Lightning trucks sold this year through November had climbed 54% to 20,365, suggesting that the popularity of that EV is surging.

But on the positive side of the ledger for Cybertruck, as I noted in a previous column, are its multiple, unique features and the fact that “In a survey released by investment bank Canaccord Genuity, 33% of respondents said that they would buy the Cybertruck.”

Tesla’s Multiple, Serious Threats and Opportunities

On Dec. 13, the automaker announced that it was recalling over 2 million vehicles because the National Highway Traffic Safety Administration had decided that its Autopilot feature does not keep drivers significantly engaged. In addition to hurting the company’s bottom line, the recall may undermine consumers’ confidence in Autopilot and Tesla in general.

Also noteworthy is that Tesla and Musk face multiple, other government probes that could hurt Tesla, while the negative reactions to Musk’s political statements could be weighing on the popularity of Tesla’s EVs.

Speaking of the popularity of Tesla’s EVs, the automaker’s third-quarter results, as I’ve noted in previous columns, strongly suggested that the automaker’s rapidly increasing competition is weighing heavily on its top and bottom lines. With the automaker’s competition continuing to intensify rapidly, unless Cybertruck positively moves the needle for the automaker, its financial results may start to look consistently awful, causing TSLA stock to tumble.

On the other hand, the automaker should be meaningfully helped by lower interest rates in 2024, and it’s reportedly developing an EV sedan that will cost just $25,000. If the latter EV has positive gross margins, it should meaningfully boost the automaker’s top and bottom lines after launch.

Valuation and the Bottom Line on TSLA Stock

Given Tesla’s weak Q3 results and its multiple, strong threats, its forward price-earnings ratio of 69 is quite high.

While I believe that Cybertruck’s lower interest rates and the $25,000 EV could revive TSLA stock, I view the name’s risk/reward ratio as roughly balanced. Consequently, I rate the shares a “Hold” and urge investors to buy the stocks of other automakers instead of Tesla’s shares.

On the date of publication, Larry Ramer held a long position in RIVN. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.