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Will Tesla Stock Recover Despite Near-Term Noise?
Supply chain disruptions, chip shortages, and macro headwinds have dragged down shares of Tesla (NASDAQ: TSLA) and several other automakers. But Tesla’s shares have also been volatile due in part to CEO Elon Musk's tweets and business decisions. Most recently, Musk decided to walk away from the $44 billion deal to acquire Twitter. Meanwhile, Tesla shares are down nearly 29% year-to-date. Any news related to the Twitter deal and the company’s operational updates about production and deliveries in the months ahead will influence the direction of the shares.
Although it is beyond the realm of possibility to predict an imminent recovery, if Tesla's key performance numbers woo investors moving forward, the stock could have a chance at halting its recent free fall.
Tesla Faces Near-Term PressuresTesla’s second-quarter deliveries came in at 254,695, up nearly 26.5% from the prior-year quarter. However, Q2 deliveries lagged analysts’ consensus estimates and were down about 18% from Q122.
The easing of restrictions in China helped the company recover from significant disruptions caused earlier in the second quarter at its Shanghai facility. Tesla stated that it’s June vehicle production was the highest monthly figure in the company’s history.
With Tesla ramping up production, focus will now be on the company’s performance in the second half of the year.
Meanwhile, Tesla’s profitability is under pressure due to rising costs. As per a Reuters report, last month Musk expressed his concerns about the economy in a message sent to company executives. Musk stated that he had a “super bad feeling” about the company's outlook and needs to slash about 10% of the company’s staff. Musk also stated that the company will pause hiring worldwide.
Tesla’s upcoming Q2 results, scheduled on July 20, will throw more light on the extent to which higher input costs and supply chain issues hurt profitability.
Cautious Bullishness from AnalystsOppenheimer analyst Colin Rusch feels that investors should consider production run rate and pricing dynamics over the short term as key drivers of revenue and gross margin under normalized operating conditions.
Rusch adds that COVID-19 restrictions in China along with production disruptions in certain geographies hit by the Russia-Ukraine war could continue to impact component availability. The analyst anticipates headwinds to be largely addressed by the fourth quarter, but wouldn’t be surprised by some pressure on margins in the meantime.
Rusch has a Buy rating on Tesla stock and remains bullish considering Tesla's potential earnings leverage, technological leadership, and the recent pullback in the stock.
Overall, the Street is cautiously optimistic on the stock, with a Moderate Buy consensus rating based on 16 Buys, eight Holds, and six Sells. The average price target of $867.41 implies 15.30% upside potential from current levels.
Investors have a Thin Line to WalkSeveral analysts continue to be bullish on Tesla’s technology, innovation, and leading position in the EV market. However, there are others who are sidelined on the stock or are bearish due to the growing competition in the EV space, a challenging macro environment, and fears of an impending recession. Also, the fallout of the Twitter deal could influence Tesla’s shares over the near term.
Tesla’s performance in the second half of the year will provide more clarity on the company’s ability to deliver amid tough business conditions and influence the stock’s movement in the remaining part of the year.
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