Why Tesla’s stock is still defying gravity
Investors have quickly turned on companies like Netflix (NFLX) that were growing fast during the recovery from the pandemic but are now sputtering. Yet Tesla (TSLA), which skeptics have long said is overvalued based on rosy projections for the future, is experiencing a much softer landing.
What’s happening: Tesla shares have dropped 7.5% year-to-date, just a bit worse than the S&P 500. They fell 5% on Wednesday as Wall Street worried that its first quarter earnings, like Netflix’s, would be much worse than expected.
That didn’t happen. Tesla posted a record quarterly profit of $3.3 billion in the first three months of the year, handily beating Wall Street’s forecasts. Its shares are up 7% in premarket trading on Thursday.
CEO Elon Musk said Wednesday that Tesla should be able to produce 1.5 million vehicles this year, beating 2021 by 60%. Production at the company’s factory in Shanghai, which had been halted by coronavirus lockdowns, “is coming back with a vengeance,” he added.
2. Stock split: The company is planning to split its stock for the second time in two years, a move that could make it more accessible for everyday investors by reducing the price of each share.
When Tesla announced that it would ask shareholders to approve a split late last month, its stock shot up 8%.
3. Pricing power: Like all automakers, Tesla is grappling with rising costs and supply chain snarls. The price of metals it uses in batteries, like nickel and lithium, jumped following Russia’s invasion of Ukraine. Shipping, energy and labor have also gotten more expensive. But Tesla has been able to offset higher costs by raising prices for its vehicles.
“It may seem like maybe we’re being unreasonable about increasing the prices of our vehicles given that we had record profitability this quarter, but the wait list for our vehicles is quite long,” Musk said.
He added that the company wants to make electric vehicles as “affordable as possible,” but that decades-high inflation is making that more difficult.
Higher prices for cars like Tesla’s Model 3, its most affordable model, could eat into some demand. But JPMorgan analyst Ryan Brinkman told clients
Thursday that the company may be in a better position than some competitors “given its generally longer waitlists and loyal and aspirational customer base.”
Risks remain: That doesn’t mean Tesla’s stock is protected from a sell-off. Bank of America analyst John Murphy noted Wednesday that the company’s stock “may already be priced for perfection (or at least priced for hyperbolic growth).” That will make logging fresh rallies — or holding onto its gains — a trickier endeavor.