Tesla has yet again posted another quarter of record production, revenue, and profit. Where next for Elon Musk’s trillion-dollar trailblazer?
After falling to $85 in March 2020, Tesla shares rocketed by 1,338% to a record $1,222 by November 2021. They then fell to $764 on 23 February, recovered to $1,145 on 4 April, and now hover at just over $1,000.
This longer-term perspective is important because while Q1 results were excellent, its effect on Tesla’s share price has been comparatively negligible.
Tesla shares: the bull case
Reporting another quarterly record revenue generation of $18.8 billion, up 81% year-over-year, Tesla smashed the Refinitiv average analyst estimate by $1 billion. Moreover, the EV manufacturer generated $3.3 billion in profits.
It also delivered 310,048 vehicles, another quarterly record, up 68% on Q1 2021. Further, CEO Elon Musk advised that production would ramp up by 60% to 1.5 million vehicles in 2022, after opening new Gigafactories in Berlin and Austin, Texas.
The CEO inspired that ‘the future is very exciting… I’ve never been more optimistic or excited about the future of Tesla than I am right now.’ He also claimed that Tesla will achieve fully self-driving vehicles this year and ‘volume production’ of its ‘robotaxi,’ with no steering wheel or pedals by 2024.
Musk also confirmed his ‘firm belief’ that the company’s in-development humanoid TeslaBot will eventually be ‘worth more than the car business of Tesla.’
The world’s wealthiest person signed a 2018 deal that meant he would ‘receive no guaranteed compensation of any kind – no salary, no cash bonuses, and no equity that vests by the passage of time.’ Instead, he opted to receive a $55.8 billion bonus if its market cap hit $650 billion by 2028, a target he hit eight years early.
And rumours abound that he could be creating a parent company to bring Tesla, SpaceX, Neuralink, and The Boring Company under one umbrella. With Tesla already a trillion-dollar company, the parent could well overtake Apple as the most valuable in the world.
This is the bull case: Tesla is not simply a car company, but a disruptive technology company that deserves its valuation on the merits of Musk’s managerial excellence and entrepreneurial spirit.
Tesla share price: the bear case
The supply chain crisis is the most immediate problem facing Tesla, as the pandemic, inflation and Ukraine war conspire to limit its manufacturing capacity. The company has warned that ‘factories have been running below capacity for several quarters as supply chain became the main limiting factor, which is likely to continue through the rest of 2022.’
Of particular concern are the sky-high prices of EV and semiconductor-critical metals like cobalt, lithium, palladium, platinum, and nickel, production of which have all been hit hard by the war. Tesla has already been forced to raise prices.
The spotlight is also on its Shanghai Gigafactory, which has been caught in the fishnet of China’s zero-covid lockdown policy. Musk accepts that the company ‘did lose a lot of important days of production, but Tesla in Shanghai is coming back with a vengeance.’ However, Tesla has described the restart as one of ‘limited production,’ with employees reportedly sleeping on the plant’s floor.
Moreover, Tesla has warned some customers are facing a long waitlist, with many orders not arriving until 2023. And its global vehicle inventory has now fallen to a three-day supply, down from eight days in Q1 2021.
In addition, Musk has warned investors that despite his hopes for a fully autonomous car this year, ‘of any technology development I’ve ever been involved in, I’ve never really seen more kind of false dawns where it seems like we’re going to break through but we don’t.’
But the critical danger for Tesla is that its outsized valuation is based almost entirely on continued explosive growth.
If Tesla is best classed as a technology stock, just one quarter of stalled growth could be enough to sink its share price. Meta Platforms (Facebook) lost daily active users for the first time this year, and Netflix lost 200,000 subscribers this week. Despite both companies remaining market leaders in their respective sectors, their share prices have both fallen off a cliff.
And worryingly, Tesla delivered less than 1 million vehicles, accounting for just 1% of global car sales in 2021. For context, Toyota alone produced 7.5 million. And Tesla shares will soon be competing with every legacy manufacturer, as well as EV upstarts like NIO, Rivian, and Lucid.
The bulls and bears will continue to tussle.
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