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

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

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