Tesla stock is up 14% in 2023! Is this an opportunity or a trap?

Last year was rough for Tesla (NAZDAQ:TSLA), which fell 65%. It is now down 75% from its peak in November 2021.

It marks another tumultuous year for Tesla founder and chief executive Elon Musk, who has now suffered the biggest financial loss in history. His personal fortune, mostly in Tesla stock, fell to about $182bn.

The big division

Of course, investors are now divided into two camps. Those who think Tesla has been pushed into the ditch because Musk is distracted by the $44bn purchase of Twitter, and the hardcore loyalists who see this as a great opportunity to buy shares on the cheap.

Tesla prices are more attractive than ever. The price-to-earnings (P/E) ratio peaked at 1.274 in December 2020. The current 12-month P/E ratio looks very low compared to 21.38 times earnings. But it’s still more than four times General Motors’ current earnings of 5.18 times while Ford’s is 5.81 times.

The old-school motorcycle maker is also eating into Tesla’s share of the electric vehicle (EV) market. Others fear the catching-up EV revolution is hitting a wall, with sales falling as charging networks continue to fail and driver frustration grows.

The higher cost of lithium won’t help. There is also no risk of China’s Covid lockdown, as the country is a huge market for Tesla. The IMF predicts that a third of the world will experience a recession this year, which will only get worse. Then we have the whole Twitter furore, which has become politically toxic, and a distraction for Musk.

Lest we forget, Tesla is profitable, with Q3 profits of $21.45bn and net income of $3.3bn, driven by energy storage and regulatory credit gains.

It’s still electric

Personally, I like to buy the top stocks that I don’t like, and sell them at a lower price. My concern is that Tesla is so overvalued that it now appears to be cheaper than it really is. Just because the same stock has fallen from $415 to $100, doesn’t mean it can’t fall back to $50.

The stock price is up about 15% year-over-year, which will tempt some. But I am wary, because this can be a ‘dead cat bouncing’.

After the US Federal Reserve pivots on interest rates, growth stocks like Tesla should swing back into favor. But I don’t expect a return to the glory days of US technology. Interest rates will probably never fall again, or stimulus will be high, or investors will be trusted. Tesla has to tackle tougher terrain now.

I find it hard to bet against Elon Musk though. The man is a genius, even if his harsher critics say otherwise. I want to buy Tesla stock, but I’m not doing that right now.

The problem is that I can’t figure out what to do next. It could easily go down, at least until the Fed pivots and the animal spirits of investors return. I want to give it a few months before adding it to my portfolio.