Tesla (NASDAQ:TSLA) has plenty to celebrate today. The electric vehicle (EV) leader just reported earnings for Q1 2021 and beat Wall Street expectations. Both the company’s adjusted earnings per share (EPS) and revenue were higher than what analysts had predicted. These positive statistics have sent TSLA stock soaring up today. And while investors are happy, one skeptic continues to sound the warning bells for U.S. stocks. Investor Michael Burry sees Tesla as an overvalued play with a bubble that is about to burst.
Let’s take a look at what he has to say and why it won’t effect TSLA.
What’s Happening With TSLA Stock
The positive earnings report has TSLA stock roaring this morning. It jumped 10% when markets opened and while it has dipped slightly, it remains in the green. As of this writing, shares are up 9.2% for the day and could easily rise even higher. Given the fact that the company has managed to exceed Wall Street expectations on both top and bottom lines and has continued scaling production, this is hardly surprising.
However, this earnings season hasn’t been so rosy for other companies. Streaming giant Netflix (NASDAQ:NFLX) just reported a loss of 200,000 subscribers and a 10% decline in revenue growth. Burry attributes this to increasing competition, and he foresees the same fate befalling Tesla. While his comments haven’t served to push it down, they do warrant a closer look.
Why It Matters
Before yesterday’s earnings report, Burry tweeted that “the competition came for Netflix just like the competition is coming for Tesla.” While the tweet has since been deleted, it was up long enough for investors to take notice. Wall Street remembers what happened the last time it dismissed a prediction by Burry. But this isn’t quite the same financial landscape as it was in 2008, when the little-known investor rose to fame by shorting the housing market.
Burry is not incorrect in his assessment. Yes, the EV market is becoming oversaturated with competition. Legacy automakers are expanding their electric products, and trendy EV startups are continuing to rise. Lucid (NASDAQ:LCID) saw considerable gains in late 2021, the same season in which Rivian (NASDAQ:RIVN)’s initial public offering (IPO) took Wall Street by storm. But throughout the year, no competitor rendered any serious threat to Tesla. Data shows that the EV giant remained comfortably at the top of its sector.
This year, there’s no reason to suspect that Tesla will be overtaken by competition. It already saw sales increase for the first quarter while Ford (NYSE:F) and Toyota (NYSE:TM) both watched theirs fall. It’s also worth noting that the EV market is expected to witness a compound annual growth rate (CAGR) of 19% while that of the streaming industry is predicted to only grow by 12%. Tesla is at the top of a faster growing sector and is well-positioned to keep growing. Yes, the Shanghai factory shutdowns generated some concern among investors. But the recent openings of new gigafactories in both Berlin and Austin, Texas, will help the company keep pace with demand that isn’t slowing down.
What It Means
Burry isn’t wrong that competition for Tesla is mounting. But if he meant to imply that it will push TSLA stock down, he is incorrect. The EV leader has no intentions of losing its place at the top of the sector. And its competitors will have to grow significantly before they can pose any real threat to Tesla. If TSLA stock falls later this year, it won’t be because of rising competition.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
