After Tesla (NASDAQ:TSLA) stock rebounded sharply this year in-line with my previous predictions, I believe that the shares are fairly valued.
Although the automaker’s delivery growth and brand remain strong, there are signs that the demand for its EVs is waning. Some of its threats and weaknesses could start significantly, negatively affecting its financial results in the coming quarters.
Given these points, I advise investors to sell TSLA stock at this point and instead buy the shares of several other automakers whose risk-return ratios are more favorable.
Tesla’s Delivery Growth and Brand Are Still Solid
Tesla delivered slightly more EVs than expected in the first quarter, and its deliveries jumped 36% versus the same period a year earlier. Considering that data, I believe that Tesla’s sales growth and its brand remain quite strong for now. I have seen no data point or information showing the automaker’s growth or brand has meaningfully deteriorated.
Tesla’s Model Y was the best-selling vehicle overall in Sweden last month, boding very well for the popularity of that EV and of Tesla in Europe.
Signs of Potential Trouble on the Horizon
Excess supply is one sign of problems for TSLA stock, according to Fortune. Tesla has blamed the increased inventory on its decision to export a higher percentage of EVs later in the quarter. Still, investors should be concerned about the magnitude of the increase.
Another piece of information that caught my eye was this article in CleanTechnica about the high maintenance costs one owner of a Model 3 experienced.
The author claims he spent over $6,400 maintaining his Model 3 which has 90,000 miles on it. He’s had to repair the EV’s wheel alignment twice, he had to replace an aero shield twice, the arm ball joint had to be resealed, and the battery and drive had to be replaced.
Based on information from Consumer Reports Elon Musk’s company is great at keeping its brand strong, good at software, and not very good at ensuring its auto parts and components work properly.
The CleanTechnica article has made me more convinced of the latter point. And with competition heating up for Tesla as more longtime automakers release multiple EV models, slowing demand growth could indeed contribute to the automaker’s rising inventories.
Tesla is still testing its Cybertruck, and I don’t feel a great deal of buzz and excitement around that EV. Further, Rivian (NASDAQ:RIVN) and Ford (NYSE:F) have gotten a big head start on Tesla in the battle for the consumer trucks category.
And finally, Tesla is the target of several investigations by Washington that could cause trouble for it down the road.
Better Risk-Reward Ratios
I think there are several auto stocks whose risk-reward ratios are much better than Tesla, whose forward price-earnings ratio is now a hefty 51 and whose market capitalization stands at a huge $588 billion.
Chinese EV maker Xpeng (NASDAQ:XPEV), whose self-driving system appears to be significantly ahead of Tesla’s. GM (NYSE:GM) is firing on all cylinders and has a promising upcoming EV lineup. Volkswagen (OTCMKTS:VWAGY) is already doing well with EVs and is the world’s second largest automaker by unit sales. The valuations of both GM stock and Volkswagen are extremely low.
As of the date of publication, Larry Ramer owned shares of RIVN and XPEV. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.