Tesla Stock vs Amazon: Which Is Best?

Tesla

As the largest manufacturer of electric vehicles in the world, Tesla has been one of the great growth stories of the last several years.

In Q4, for example, Tesla reported 40 percent year-over-year growth in vehicle deliveries and 47 percent growth in production. This resulted in 37 percent revenue growth. Earnings also saw significant improvements, with EPS rising 40 percent to $1.19 per share.

There also seems to be a great deal of room left for Tesla to run. Today, just 6 percent of new cars sold in the United States run on electricity.

The stated goal of the Biden administration is to raise that number to 50 percent by 2030 through a mix of investments, regulatory actions and tax credits. As the share of electric vehicles on the road continues to grow, Tesla will likely continue to see its revenues and earnings improve.

Tesla is expected to roll out several new models in the coming years that could help it attract new customers. These include the Cybertruck, Roadster and Model 2.

The company is also working on a line of fully electric semis that could one day be used to reduce emissions from the transportation of goods. While it’s extremely difficult to estimate the value of these models to Tesla’s business, it’s clear that a wider lineup of vehicles will likely play well with consumers.

On the negative side, Tesla has long suffered from sky-high valuations that put unrealistic growth demands on the company. Even after the selloff that the stock experienced in 2022, many analysts still believe Tesla to be substantially overvalued. Several of the company’s value metrics support this view, including a price-to-cash-flow ratio of over 39.

Tesla also has the disadvantage of losing its previously unassailable market share to other auto majors. In 2020, Tesla accounted for nearly 80 percent of the EV market. Today, that number has dropped to 65 percent, and the company is expected to lose further ground in 2023. As established auto majors like Ford and GM continue to invest in EV releases, Tesla will have to contend with an increasingly competitive market.

Amazon

Like Tesla, eCommerce titan Amazon is the single most dominant business in its industry. Amazon accounts for more than 35 percent of all eCommerce sales in the United States. Its next largest rival, Walmart, accounts for less than 7 percent. A

s of Q4, Amazon had seen its net sales increase 9 percent over the past year. Net income, however, shrank from $14.3 billion in 2021 to just $0.3 billion. Much of this effect on earnings is due to rising costs and may be temporary.

Amazon has also been able to unlock immense value through its Amazon Prime membership program. The average Prime member spends about $1,400 on Amazon annually, more than double the average spend rate for non-members.

With more than 168 million members, Amazon has created a strong recurring revenue stream. Although Prime membership dropped slightly in 2022, the willingness of customers to continue paying extra for Prime benefits demonstrates Amazon’s power as an eCommerce brand.

Beyond its eCommerce business, Amazon has even established itself as a dominant force in the tech sector. Amazon’s cloud computing business, Amazon Web Services, outperforms both Microsoft and Google in the area of cloud computing. AWS is also a key growth driver for Amazon.

One of the main negatives for Amazon is its current excess capacity of warehouse space. During the COVID-19 pandemic, the company brought extra warehouses online at an aggressive pace to keep up with demand. Now, much of that space is underused and inefficient from a cost perspective. Although potential new business lines like renting out storage space could allow Amazon to put these warehouses to work, they are currently a major drag on the company’s success.

Which Stock Is the Better Buy?

Over the long haul, Amazon is likely a better stock to buy today than Tesla. Amazon’s economic moat seems much wider than Tesla’s, even though Tesla’s market is likely to grow faster. With the EV giant losing market share to its competitors and Amazon retaining unquestioned dominance of its market, Amazon is likely the safer long-term bet.

Although neither company is exactly a value buy, Amazon also seems to be closer to a fair value than Tesla. The company sells at a lower multiple to its cash flows and will likely produce more reliable earnings growth than Tesla over time. While Tesla’s earnings could spike over the next few years, the stock is priced at a level that makes it less attractive.

Overall, Amazon is likely the better fit for a wider range of investors. While some highly risk-tolerant investors may prefer Tesla, Amazon seems to offer a substantially better risk-reward proposition due to its robust moat. This, combined with its better valuation, makes Amazon the probable winner between these two stocks.

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.