2 car stocks I wouldn’t touch with a bargepole in today’s market!

The inventory market’s been getting a little bit sizzling in locations. And for now a minimum of, I’m a little bit involved about these two high-profile automobile shares — Tesla (NASDAQ:TSLA) and Ferrari (NYSE:RACE).

Let me clarify why I wouldn’t go anyplace close to them at this time.

Ready for a Robotaxi

As a automobile inventory, Tesla’s vastly overvalued. Even Elon Musk is aware of this, asking traders to think about the corporate as a tech inventory, and never an entity that solely makes automobiles.

The issue is, it at present trades at 70 occasions ahead earnings, and 81.1% of income comes from automobile gross sales. Whereas Tesla’s power era and storage income hit $6bn in 2023, it’s nonetheless a small a part of the enterprise.

So why is the inventory nonetheless so costly? Effectively, Musk has promised that the long-awaited — and I imply years overdue — Robotaxi can be unveiled on 8 August.

This might be a game-changer for the corporate, opening up new income streams. Amongst different issues, Tesla might function as an automatic taxi firm.

It might generate billions by the sale of extra computation energy. That’s as a result of autonomous autos will want highly effective computer systems. These received’t be absolutely utilised as a result of we don’t drive our automobiles 24 hours a day.

Nevertheless, I’m undecided what Tesla will really unveil in August. In spite of everything, a completely autonomous automobile could be ‘Degree 5’ autonomy — its present autos are solely ‘Degree Two’.

Furthermore, it was not too long ago reported that Musk has diverted hundreds of Nvidia’s H100 synthetic intelligence (AI) chips, that have been meant for Tesla, to X (previously Twitter). That’s additionally a fear as a result of, absolutely, these AI-dependent autos will want them.

In brief, I wouldn’t contact Tesla with a bargepole at this time as a result of I’m involved Musk may be overpromising. It’s additionally price remembering that he gave us the Robotaxi unveiling date shortly after a disappointing set of Q1 outcomes. It smacked of a distraction.

Nonetheless, if Tesla can pull the cat out of the bag, I’d definitely be eager to re-evaluate my place.

Figures simply don’t add up

Ferrari’s a tremendous firm. It has the strongest margins within the car-building business — its gross revenue margin is 49.8%.

These margins are solely potential because of Ferrari’s model recognition — on the pinnacle of luxurious sports activities autos — and its restrictive provide.

Founder Enzo Ferrari as soon as mentioned: “Ferrari will at all times ship one automobile lower than the market calls for.”

Nevertheless, for me, the figures simply don’t add up. I’ve beforehand been impartial on the inventory, acknowledging that traders merely love nice companies. However, let’s face it, Ferrari’s buying and selling at 48 occasions ahead earnings and that’s too costly.

It merely comes all the way down to the truth that margins are already extraordinarily excessive and since Ferrari can’t enhance manufacturing as a result of its towards the enterprise mannequin. Greater manufacturing might additionally put margins underneath strain.

The Purosangue SUV goes to be produced in better portions than different fashions. Nevertheless, Ferrari’s whole deliveries are unlikely to maneuver past 15,000 anytime quickly.

It’s an important firm, nevertheless it’s too costly for me in the mean time.