Company / Analytics

Analytics, 26 May 2022

Is Tesla Inc. still a viable investment?

When Tesla Inc. closed 2021, it was arguably the best auto stock. The leading EV company had a trillion-dollar market capitalization, making it the most valuable automaker in the world. But the stock has been on a downward trend for the better part of 2022, falling almost 50% below the all-time high it reached in October 2021.

Tesla’s record fall is attributed to a range of factors, including those experienced by the broader market over the last six months. The S&P 500 index has lost nearly 20%, and almost entered a bear market territory, the Dow has lost nearly 15% in 2022, while the Nasdaq is down 29% in 2022. Meanwhile, other automakers have also seen their stocks drop. For example, General Motors, has seen a 40% fall in stock over the same period. Tesla CEO Elon Musk’s bid to take over twitter also continues to negatively affect Tesla stock’s performance, as the takeover has proved to be a circus show with many uncertainties, placing investors on their toes.

Is Tesla Inc. still a viable investment?

Tesla Inc. closed 2021 as arguably the best automotive company investment of 2021, with investors up nearly 50% in the year. The leading EV automaker ended 2021 with a market capitalization of over a Trillion Dollars, making it the most valuable automaker in the world. This was fueled by, among other reasons, the unprecedented and impressive rise in deliveries in the year, with the company delivering 87% more vehicles than 2020, blowing away any analyst’s delivery expectations in the year. Tesla also began delivery of a new model, with the Model S Plaid making its debut in the year, and the company’s autopilot tool, FSD, getting massive improvements.

But Tesla stock has experienced a downtrend for the better part of 2022, falling as low as 50% of its all-time high reached in October 2021. The loss in stock value can be attributed to a couple of factors, with global stock markets seeing a similar downtrend in the last 6 months. The S&P 500 index has seen a fall of 13% in the period, while fellow automaker, General Motors, has seen a 40% fall in stock over the same period. Elon Musk, Tesla’s founder, CEO, and largest shareholder is in a bid to takeover Twitter, which has also affected Tesla’s performance in the market quite negatively as the takeover has proved to be a circus show with many uncertainties, placing investors on their toes. With the stock still performing badly, the company kicked out of S&P 500 ESG index, investing in Tesla has become quite a daunting investing decision. Is it still a good investment?

Despite the negative performance in recent months, Tesla continues to record operational profit margins, maintaining an 11-quarters streak in operational profitability running from 2019 to 2022. It currently holds a 15.3% operating profit margin, about twice GM’s and VW’s profit margins. The carmaker also accounted for 75% of all new EV sales in the US in the first quarter of 2022, and accounts for 13.84% in global EV market share, asserting its dominance in the EV industry in the US and globally. Tesla also looks to increase production in 2022 by 50%, and the company looks set to achieve their target with the launch of a new Gigafactory in Texas, GigaTexas, that also looks to be the production of new models; the Tesla Semi, roadster and CyberTruck in coming years. Tesla also continues to prove to be the most innovative automaker, with a notable strive to achieve full production in-house. With the launch of GigaTexas, the second biggest factory in the US, and second largest building in the world, Tesla is looking to revamp its production and supply chain process. Whilst their competition continues to ramp up the race for EV sale dominance, with Volkswagen CEO Herbert Diess vowing to surpass Tesla to become the leading EV seller by 2025 and GM debuting its Hummer electric pickup truck, Tesla still seems to be years ahead, and it will take a lot to overtake them.

Should you buy Tesla shares?

Tesla therefore still seems to be a good investment. The company has through Musk, consistently been vocal on its aim at accelerating the adoption of EVs over ICEs, and consequently accelerating the shift from Oil and Gas for energy to renewables. Despite the company being kicked out of S$P 500 ESG index, with reasons including “low carbon energy and codes of business conduct”, Tesla still remains a leader in taking ICE vehicles off the road and plays its part in combating climate change. This factor, combined with Tesla’s lead in production efficiency and technology is key in assessing how future-proof Tesla’s stock is, and its viability as a long-term investment.

The current consensus among 42 polled investment analysts is to buy stock in Tesla Inc. Meanwhile, the 35 analysts offering 12-month price forecasts for Tesla Inc have a median target of 1,035.00, with a high estimate of 1,620.00 and a low estimate of 250.00. The median estimate represents a +50.96% increase from the last price of 685.61.

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