Tesla's Entry into India: Is the Stock Worth it After a 26% Cut?

Elon Musk's recent announcement regarding Tesla (NASDAQ:TSLA)'s entry into India signals a significant stride towards bolstering the country's electric vehicle (EV) ecosystem. Despite India's relatively small EV market, comprising only 2% of total vehicle sales in 2023, the potential for growth remains immense. The premium segment, encompassing vehicles priced over US$35,000, constitutes a mere 2% of the market, yet projections indicate a substantial rise in high-income households and overall passenger vehicle sales over the next decade. Here's what Morgan Stanley (NYSE:MS) has to say.

Key Factors Driving Tesla's Interest in India:

1. Rising Affluent Households: With a projected increase of fivefold in households earning US$35,000 or more annually over the next ten years, there's a burgeoning potential for higher consumer spending, particularly in the premium vehicle segment

2. Expanding Passenger Vehicle Market: Forecasts suggest a robust expansion in the passenger vehicle market, with the potential for the US$35,000+ segment to grow almost sixfold by 2034. Tesla's potential introduction of the Model 2, priced at US$25,000, could substantially expand the addressable market.

3. Government Incentives: Favorable government policies, including substantial subsidies for EVs and reduced import duties on fully built EVs, create a conducive environment for Tesla's entry into India. Moreover, strategic partnerships with local entities like Tata Electronics and Panasonic (OTC:PCRFY) further enhance Tesla's prospects.

India's strategic focus on EVs aligns with both industrial and environmental imperatives. The government's initiatives, such as lower GST on EVs, production-linked incentives (PLI) schemes, and supportive regulations, underscore its commitment to fostering EV adoption and domestic manufacturing.

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The stock has also taken a decent hit in recent times, falling 26.6% in the last 3 months. This underperformance due to excessive selling pressure is now materializing into a long opportunity as the slide has increased the valuation gap.

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Looking at the current fair value of the stock which has been calculated after taking 12 complex financial models into consideration, it is coming at INR US$188.45 per share, higher by 24.1% from the CMP of US$155.45.

In fact, 40 analysts covering this stock have also given an average target of US$192.25 which is even higher than the fair value, depicting a bullish tone among astute investors.

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Also, if you look at the financial health check of the company, a score of 3 out of 5 is not at all bad. This tool analyzes over 100 parameters across 5 broad categories to arrive at a robust fundamental score, essentially quantifying the qualitative aspects. A score of 3 or above shows good fundamentals and surpasses the minimum threshold to be considered for the portfolio. Any stock with ratings below 3 should be avoided on the fundamental grounds.

Why India Matters:

1. Industrial Growth: As India aims to boost its manufacturing sector's contribution to GDP, the automotive industry, including EVs, emerges as a pivotal driver. The transition towards low-emission mobility is not only imperative for environmental sustainability but also for advancing India's industrial competitiveness on the global stage.

2. Environmental Sustainability: India's ambitious targets for achieving net-zero emissions by 2070 necessitate a significant decarbonization effort, particularly in the transportation sector. With transportation accounting for 13% of India's GHG emissions, the shift towards EVs assumes paramount importance in mitigating climate change.

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X (formerly, Twitter) - Aayush Khanna