Tesla Shares Surge: What's Driving the Latest Rally
Key Points
Tesla beat Wall Street's estimates for vehicle deliveries in the third quarter.
Tesla's shares remain very expensive, and the company faces increasing global competition.
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Tesla (NASDAQ: TSLA) stock surged 7.5% over the past month, outpacing the S&P 500's 1.3% gains, as of this writing.
Tesla's shares got a boost from the company's better-than-expected electric vehicle (EV) deliveries, which reached 486,532 for the third quarter (ended Sept. 30), compared with Wall Street's consensus estimate of 461,100.
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While that was good news for current Tesla investors, the company's expensive valuations and EV headwinds should give potential buyers pause before loading up on Tesla stock.
Image source: Tesla.
The end of Tesla's EV winter?
There was a fair amount of praise coming from Wall Street after Tesla released its third-quarter production and deliveries figures. Deutsche Bank analyst Edison Yu raised Tesla's price target to $420, up from $370, citing consumer demand from Europe, China, and the U.S.
Gene Munster's Deepwater Asset Management wrote that "Tesla is going to crush traditional automakers" and that the EV winter was ending for the company. Munster compared Tesla's minimal 2% decline in deliveries for the quarter to Ford's and General Motors' worrying 75% decline in electric-vehicle deliveries.
With the latest results, Tesla is on track to beat its deliveries from last year. It needs to deliver just 311,448 vehicles in the fourth quarter to outpace its 2025 results.
Tesla's boost in deliveries comes as the company has lowered vehicle prices to spur demand and as gas prices have surged due to the war in Iran. The combination of those two issues convinced some buyers to choose Tesla, and it could help the company reverse two consecutive years of delivery declines.
Tesla stock is still too expensive
It's tempting to think that Tesla stock is worth buying when the company is beating Wall Street's delivery estimates, and analysts are issuing lots of positive comments. However, it's worth putting the company's deliveries in perspective.
First, they're still down slightly from the year-ago quarter. Reversing its full-year delivery declines -- if that's what Tesla ends up doing -- is a positive sign, but not enough to make me want to buy the stock. Increasing deliveries should be the bare minimum for a car company.
More concerning for potential investors is that buying Tesla stock right now is just too expensive. Tesla's shares have a trailing price-to-earnings ratio of 351. For comparison's sake, the tech sector -- which includes booming artificial intelligence stocks -- has an average P/E ratio of just 33.
I'm not saying that Tesla isn't on the right track, or that the company's Q3 deliveries weren't good. But buying the stock because of the Q3 deliveries, and while its valuation is sky-high, probably isn't the best decision.
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.
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