Tesla stock correction: a chance to get rich?

Tesla (NASDAQ:TSLA) shares have fallen more than 70% over the past year. And on the first day of trading in 2023, it fell by 12%.

Even though the price has dropped, it is still 412% higher than it was five years ago. This is a perfect example of why investing should always be for the long term. A quality company should generate market earnings over a long period of time.

However, it’s hard to ignore the fact that by October 2021, the electric car maker will have a market cap of more than $1trn. At the time, this was more than the combined value of the world’s 10 largest automotive companies.

But now, Tesla is worth ‘only’ $340bn.

Are the wheels gone?

There’s no doubt that electric cars are the way forward, which probably explains Tesla’s high price tag. The company was the first to use clean technology to produce the desired vehicle. But now it seems like everyone in the automotive industry is doing the same thing. Automakers have ditched the traditional boxy design, and are now producing electric vehicles that people love and enjoy looking at.

But at first glance, Tesla still looks good.

The company generated $3.3bn in free cash flow in the third quarter of 2022 and, at the end of September last year, had $21bn in the bank. Gross profit increases and operating expenses under control. It has recently opened new factories in Texas and Berlin, and the company continues to invest heavily in new product development.

It produced a record number of vehicles in Q4, up 11% from the previous three months. But analysts expect a higher number (up to 25,000 more cars) which explains the market reaction this week. More worryingly, this is the third straight quarter in which the company’s production numbers have disappointed.

In an effort to boost sales, it looks like the company is offering bigger discounts and other incentives. There are also supply chain issues affecting production in China.

Much of Tesla’s success can be attributed to the vision and passion of its founder Elon Musk. Investors will be hoping that they will focus more on Tesla once Twitter’s replacement CEO has been found.

Should I buy it?

Personally, I think the company is still worth it. With a price-to-earnings (P/E) ratio of over 100, the stock is not cheap. But others seem to disagree.

According to Refinitiv, the average price target of the 41 analysts covering the stock is $250. This is more than double the stock’s current price.

Although I have no doubt that Tesla will continue to be a pioneer in the electric vehicle (EV) industry, I wouldn’t invest right now. I have missed the boat on getting rich from Tesla stock. I believe there is more money to be made from investing in the precious metals that go into EV battery production, especially lithium, nickel and cobalt.

The Boston Consulting Group believes that lithium shortages will be “chronic“. By 2035, it is estimated that demand will exceed supply by 24%. This means continued upward pressure on lithium prices. Now, this seems like a better opportunity than investing in Tesla.