Tesla (NASDAQ:TSLA) shares have had a rough run these past few weeks. In fact, since the start of April, the stock has fallen by over 33%, although it’s still up by an impressive 32% versus 12 months ago. And it seems this recent tumble has sparked a new wave of buying activity from Hargreaves Lansdown investors. Tesla is now the second most popular stock to buy on the platform by transaction value. So, is now a great time to add this business to my portfolio?
The growth potential for Tesla shares
Looking at the latest earnings report, the electric vehicle manufacturer continues to impress. Total revenue reached $18.76bn in the first quarter of 2022 – an 81% jump compared to a year ago. Meanwhile, operating margins have continued to expand from 5.7% to 19.2%, triggering a massive 633% explosion in earnings per share. Top that off with similar improvements in free cash flow, and the result is a growth stock firing on all cylinders.
This is even more exciting when considering the electric vehicle market is far from reaching its full potential. In fact, analyst forecasts predict this sector to continue growing by an average annualised rate of 24.5%, reaching $980bn by 2028.
With more production facilities coming on-line and a clear head start versus traditional automakers, Tesla shares seem to be perfectly positioned to capitalise on the growing opportunity. So, I’m not surprised to see Hargreaves Lansdown investors go on a shopping spree after the recent tumble.
Nothing is risk-free
Despite this incredible performance of Tesla shares over the last couple of years, I have some reservations. For the most part, the company has been operating in a largely uncontested arena. But with sales bans on combustion-powered vehicles starting to emerge globally, the level of competition is ramping up and fast.
Industry titans like Toyota and Volkswagen have already begun venturing into the electric vehicle space. With considerably more resources and capital at their disposal, Tesla will undoubtedly face new challenges. And we’ve already seen a slight preview of what this could look like, given its struggles to penetrate the Chinese market versus local competitors like NIO.
Time to buy?
While I continue to admire this business, I remain sceptical regarding its valuation. A lot of anticipation of future performance seems to be baked in, and that may not come to pass. And with ongoing complications at its Shanghai factory, 2022 performance may start to wobble. Admittedly this does look like a short-term problem. But with such a lofty valuation, any teetering in the group’s growth trajectory could be enough to send Tesla shares in the wrong direction.
Therefore, personally, I’m still staying on the sidelines. But if the share price continues to fall, then I may have to reconsider.