2022 has seen the Tesla (NASDAQ: TSLA) share price falling nearly 40%. With ongoing supply chain issues derived from Covid-19, the firm has also seen rising pressure due to spiking inflation.
But despite these headwinds, last week saw the stock rebound by 10%. In fact, over the last month it has witnessed a 16% rise. So, after falling from its 52-week high of over $1,200, can it recover?
Tesla Q2 update
Earlier this month saw the release of Tesla’s Q2 production and delivery update. Within the period, the electric vehicle manufacturer produced over 258,000 vehicles, while it also managed to deliver over 254,000. This equated to a 27% increase year-on-year.
However, Q2 was the first time vehicle deliveries fell quarter-on-quarter in more than two years. The firm pinned this to “ongoing supply chain challenges and factory shutdowns,” as Tesla has struggled with production in recent months due to those Covid-19 restrictions hitting operations in China. Despite this, June 2022 was the highest vehicle-production month in the firm’s history.
Where next for Tesla?
So, where does the EV manufacturer go from here?
The slowing of production from Tesla falls in line with wider market struggles. Both the Nasdaq and S&P 500 have experienced large declines this year. And especially impacted have been growth stocks. This is because upward inflationary pressures tend to have the opposite effect on the price of these stocks. And as a result, the first half of this year has seen them come tumbling down. As investors tend to switch their money to ‘safer’ value stocks in volatile times, Tesla may continue to struggle in the near future.
Another issue I see with Tesla is its high valuation. For me, a price-to-earnings (P/E) ratio of 101 shows the stock is very overvalued. With this said, its P/E has been much higher in the past.
The business may also struggle with rising competition. There’s been a large push for a faster transition to electric vehicles in recent years. For example, in 2020 the UK government announced the sale of new petrol and diesel cars will end by 2030. And as such, I can see competition heating up in the EV space. This can already be seen with rivals such as Ford, which has pledged to be all-electric by 2030. While Tesla currently holds a dominant market position, this may slip in the future.
Despite this, I won’t write off the firm. It has taken massive strides to expand its manufacturing capacity. It recently unveiled its new Giga Texas plant. And at the same time, it has also set out plans to boost European sales with the opening of a gigafactory in Berlin. While this may cost Tesla in the short term, its ambitious expansion plans could help it retain its dominant position further down the road.
What I’m doing
The firm’s expansion should help it thrive in the long run. And its ambition has seen Tesla grow massively in recent times. However, I won’t be buying the shares today. I think macroeconomic pressures could see its price slip further. And with competition heating up, Tesla may see its role as industry leader slide.