Tesla (NASDAQ: TSLA) shares have been top performers over the past decade. They’re up a monumental 16,000% over this period. And the electric vehicle manufacturer proved its quality by rising nearly 900% in a Covid-struck 2020.
Despite a 25% rise in the last 12 months, the stock has struggled this year as a combination of factors has seen millions wiped off global markets.
But after gaining some momentum in the last month, rising by over 25%, is Tesla on the road to recovery?
2022 so far
Tesla entered the year trading at $1,200 but has failed to climb above that as rising inflation has seen the growth stock suffer. With inflation rates flirting with the 10% mark in the US and UK, investors have opted to place their money in ‘safer’ value stocks, as opposed to riskier shares such as Tesla. This is not uncommon in volatile times like these. And with the business struggling earlier in the year with supply chain concerns, combined these factors have pushed down the share price.
Despite this, the last month has seen the Tesla share price surge, fuelled mainly by the strong Q2 results the business posted in late July. Total revenue for the period grew 42% year-on-year. And despite supply chain concerns, the firm managed to produce the most vehicles ever in a single month in June.
It wasn’t all good news though, as it did mention a tightening of its margins due to higher inflation and competition for components.
CEO Elon Musk has also been in the headlines this year for his ongoing attempt to take over social media platform Twitter. After initially agreeing to buy the company for $54.20 per share, Musk is now searching for ways to terminate the deal. Any future move he makes would likely impact the Tesla share price.
What I’m doing
So, does the last month’s momentum signal that I should buy Tesla shares?
I’m not too sure. One factor that drives me away is its high valuation. With a price-to-earnings ratio of 107, this shows me the stock is massively overvalued. As a potential investor, this doesn’t sit right with me.
I’m also concerned about competition. Tesla and Musk have continuously adapted and improvised, and that’s led the company to where it is today. However, as the push to an electric world inevitably becomes larger, the pioneer could see its market share dwindle. We’ve already seen many manufacturers successfully enter the space. And with global governments setting ambitious targets for an electric world, this could threaten Tesla.
The business is obviously aware of this. And as a result, has expanded its operations in Europe with a gigafactory in Berlin. It also bolstered its US capabilities with a similar operation in Texas. This will take Tesla’s production to the next level and could potentially assert its dominant market position.
With this said, I won’t be buying the shares today. If there’s a man to navigate a rocky road, it’s Musk. However, I want to see how the rest of this year plays out before purchasing. I’m tempted by Tesla, but I can see its price slipping should these tough conditions we’re facing worsen. I’ll be placing it on my watchlist for now.