Tesla (TSLA 2.87%) stock has taken quite the roller coaster ride in 2023. It has been as low as $108 and as high as $293 but currently sits at around $215 after a steady decline over the past few months. But the sentiment behind Tesla stock has also changed, as the company has changed its strategy slightly in the electric vehicle (EV) market.

Previously, Tesla's margins were the best in the business, which provided shareholders with a one-two punch of strong growth and superior profits. With Tesla's change in strategy to sell its vehicles at a lower price (and thus lower margins) to secure its EV market share as the legacy automakers launch their products, some investors are rethinking their position.

So what should investors do with Tesla stock?

Tesla may not be earning its premium valuation anymore

Much of the argument around Tesla's stock price boils down to its valuation. It's hard to argue about Tesla's U.S. EV market share, but the question is, is the company worth nearly $700 billion when legacy automakers like Toyota, Ford, and General Motors are worth less than half of that combined?

Previously, the buy side's argument of superior gross margins held some water, as no other automaker (besides premium ones like Ferrari) had nearly the level Tesla did. But with rising input costs and cutting vehicle prices, Tesla no longer holds this crown.

TSLA Gross Profit Margin (Quarterly) Chart

TSLA Gross Profit Margin (Quarterly) data by YCharts.

This calls into question Tesla's valuation, as the sell side would say Tesla doesn't deserve its premium valuation anymore. With Tesla stock trading at 69 times trailing earnings compared to Toyota's 9.1 and Ford's 6.4, it would have a long way to tumble to match its peers.

But the buy side would call out that short-sightedness. Management has repeatedly stated on conference calls that these price cuts are temporary, as they are adjusting to operating in a high interest rate environment because many people focus on monthly payments rather than the overall car price. This isn't Tesla's preferred strategy as it doesn't do loans in-house like many automakers do.

But the key item here to watch is what happens when interest rates are eventually cut. If Tesla's margins improve, then the bulls can say they were right. But if they don't, the bears will have proven their argument.

Still, that only focuses on Tesla's existing businesses.

Tesla has aspirations to be much more than an EV maker

In addition to what it's already doing, Tesla also has other projects like full self-driving (FSD), robotaxis, and additional car models aimed at different audiences. On the buy side, these are mostly legitimate products that could change the world if done correctly. It's hard to value something like FSD, as how many people would adopt it and at what rate is unknown. The same goes for robotaxis or Tesla's artificial intelligence (AI) investments.

While many buy-side Tesla investors prefer to think about the future, the sell-side isn't convinced any of these products will become a reality and believes that investors should consider the products Tesla has now, as there are no future guarantees.

So, what do I think investors should do with Tesla stock? I'm in the middle at a "hold." While the short-term margin decline concerns me, I'm confident in Tesla's product versus the legacy automaker's and that price hikes will go over fine once interest rates decline. Additionally, I think Tesla has some promising products in the pipeline, but none are anywhere close to implementation, so they shouldn't be considered now.

Tesla's stock has always been divisive, and with the bears scoring a few points in 2023, it has evened the argument a bit more. The key to Tesla's stock price lies within its gross margins, as any more decline in that metric will likely send the stock down further. On the flip side, if it improves throughout 2024, don't be surprised if Tesla knocks on the door of becoming a $1 trillion company.