Shares of Tesla (TSLA), the world's largest electric vehicle (EV) manufacturer, rose 15% on Monday to post its best trading day in over three years. Tesla stock soared higher following reports that the company's Model Y and Model 3 cars were found to be compliant with Beijing's data security requirements, a key step toward clearing the path toward full roll-out of its FSD (full self-driving software) on the mainland. 

The EV stock has now surged over 30% since announcing its Q1 results on April 22. That narrows TSLA's year-to-date decline to about 21%, still considerably lagging the broader equities market. Let’s see if Tesla can charge ahead on the back of its latest development. 

China Is the Largest EV Market

China is the largest EV market in the world, accounting for 60% of total vehicle sales in 2023 - making the market a key growth driver for Tesla. Over the years, Tesla has gained significant traction in China, but it is also losing market share to domestic manufacturers such as Byd (BYD) and Nio (NIO). 

Tesla is optimistic that a full rollout of the FSD software in China could add another revenue stream going forward. Basically, FSD is an upgraded version of the Autopilot software Tesla initially launched in 2020. Until now, Tesla has offered FSD technology with certain restrictions in China. Investors should note that Tesla’s cars are not fully autonomous and are equipped with “Level 2” driver-assistance systems, which include features such as auto parking. 

However, Tesla inked a deal with Baidu (BIDU) (known as “the Google of China”), that would give it access to the latter’s mapping and navigation technology for the FSD feature. Tesla can leverage Baidu’s mapping license and legally operate the FSD tech on Chinese roads while gathering vital information related to traffic, road signs, and routes. The partnership with a Chinese company has gone a long way toward reassuring regulators around data security requirements, though the Teslarati blog quotes Tesla China as saying “there is currently no timetable for FSD to enter China.”

While official details remain scarce, the regulatory breakthrough is seen as a major win for Tesla, given the rising number of EV manufacturers in China. 

Can Tesla Stock Stage a Rebound in 2024?

Despite the recent rally in Tesla stock, it trades over 50% below all-time highs. The EV giant has trailed the broader markets in the last two years due to sluggish consumer demand and macro headwinds, including rising interest rates and inflation. 

Moreover, to offset competition, Tesla has reduced vehicle prices several times in the last two years, which has also driven profit margins lower. For instance, Tesla’s gross profits narrowed by 18% year over year to $3.7 billion, while adjusted net income declined by 48% to $1.53 billion in Q1 of 2024. 

Tesla missed analyst sales and earnings estimates in the March quarter, reporting a revenue decline of 9% year over year. Despite an uncertain macro environment, Tesla allocated $2.77 billion towards capital expenditures, as it increased artificial intelligence (AI) compute training by 130% in Q1. 

Tesla explained, “The future is not only electric, but also autonomous. We believe scaled autonomy is only possible with data from millions of vehicles and an immense AI training cluster. We have, and continue to expand, both. To make FSD (Supervised) 5 more accessible, we reduced the price of subscription to $99/month and the purchase price to $8,000 in the US.”

Is Tesla Stock a Good Buy Right Now?

Out of the 30 analysts covering Tesla stock, six recommend “strong buy,” two recommend “moderate buy,” 16 recommend “hold,” and six recommend “strong sell,” for a consensus rating of “hold.” 

The average target price for TSLA stock is $176.75, which is roughly 9% below current prices. 

Valued at $618 billion by market cap, Tesla’s sales are forecast to decline by 2.9% to $94 billion in 2024, while earnings might narrow by 23% to $2.40 per share. So, priced at 80.8x forward earnings, TSLA stock is quite expensive, given its decelerating growth numbers.