Down More Than 20% in 3 Weeks, Is Tesla Stock a Buy?

Shares of electric-car maker Tesla (TSLA -2.00%) have endured a rough few weeks. The growth stock has lost more than one-fifth of its value in just three weeks. Investors have been concerned with price cuts, slowing deliveries, and somber remarks from Tesla CEO Elon Musk during the company's third-quarter earnings call regarding the current economy and its impact on demand for autos.

Is the growth stock's pullback a buying opportunity for investors? Or is it a sign of potentially worse things to come?

A change in sentiment

Though Tesla shares are still up nearly 60% year to date, there's undoubtedly been a shift in market sentiment toward the stock to a more negative view recently.

Just consider how the narrative around one of Tesla's biggest catalysts has changed since Tesla's third-quarter earnings call. Before the call, Tesla's upcoming Cybertruck launch was largely viewed as an important growth driver for the company. But Musk had a different view about the new vehicle.

"I mean we dug our own grave with Cybertruck," Musk told analysts when describing how complex the new vehicle is to build.

Though a review of the earnings call in its entirety reveals that this was more of a tongue-in-cheek comment than a financial prediction, Musk did make one thing clear: Ramping of production of this new vehicle is going to take time.

"I just want to temper expectations for Cybertruck," Musk explained. "It's a great product. But financially, it will take, I don't know, a year to 18 months before it is a significant positive cash flow contributor."

Further, Musk broke from his typical rhetoric about demand not being a problem to emphasizing that "the auto industry is somewhat cyclic because people tend to hesitate to buy a new car ... if there's uncertainty in the economy." This likely led many investors to question whether the company can keep up strong growth rates in the current economic environment.

Musk's pessimistic view during Tesla's earnings call earlier this month, therefore, was a major catalyst in tipping sentiment from positive to negative.

Time to be a contrarian?

Concerns about the stock seem to be largely valid. So it's difficult to recommend buying the stock amid such potent economic uncertainty. But even Musk's warnings about the company's problems today include an important word that suggests the company's issues may only be temporary. That word is "cyclic." If Tesla's problems are truly just cyclic in nature, they will eventually pass.

So it's with caution I'd urge investors interested in the stock to consider adding to their position, so long as they have a time horizon of 10 years or more, their total position in Tesla stock is small as a percentage of their total portfolio, and they are willing to endure significant volatility (including the possibility of the stock plummeting even lower from here).

Despite the company's current problems, Tesla has provided us with some concrete reasons to be optimistic about its long-term potential.

First, there's Tesla's war chest of cash of $26 billion. This cash cushion enables Tesla to continue innovating and growing its lead over competition -- even during a tough macroeconomic environment.

Second, though Tesla's Cybertruck may endure a slow ramp-up in production and may not be a positive cash contributor to the business for about 18 months after deliveries begin later this year, Musk emphasized in Tesla's third-quarter earnings call that demand for the vehicle is "off the charts." So when production catches up to demand, the Cybertruck could morph into the major catalyst investors were hoping for.

Third, Tesla's pricey driver-assist software, which currently offers a "self-driving" beta program for qualifying drivers, paints a picture of a more lucrative future for the auto industry.

Finally, electric cars still represent only a small fraction of total annual global vehicle sales. Tesla should benefit from consumers' increasing adoption of electric vehicles over the next 10 years.

The company and stock's near-term outlook are still mired in uncertainty. But the stock is starting to look quite compelling as a long-term investment. Yes, shares are still priced for staggering growth at 63 times earnings. But we're talking about a company that grew its vehicle deliveries 40% in 2022 and has a nascent energy business that is growing even faster. If Tesla's growth in the remainder of the year and in 2024 exceeds expectations, sentiment can shift from negative to positive quickly and today's buying opportunity could evaporate.