Source: PaxForex Premium Analytics Portal, Fundamental Insight
Tesla has been in the spotlight lately, but not for the reasons you may assume. CEO Elon Musk is drawing a lot of attention to his interest in Twitter, which has drawn attention to Tesla for reasons that are mostly irrelevant to the actual business.
Current or potential shareholders need to isolate the signal from the noise and concentrate on Tesla's business when making investment decisions. While the actions of its CEO are certainly noteworthy, there are other factors related to Tesla that deserve more attention when it comes to buying or selling any stock.
- Tesla stock split is not as significant as it may seem
Shareholders can be understood if they think a stock split means a rise in the stock price. After Tesla announced its last stock split in 2020, the share price increased 80%. Nevertheless, it is essential to remember that the timing of this split also overlapped with a general bull market in the middle of its recovery from the pandemic crash. There is no guarantee that the recent news about the stock split will cause the same bounce in the stock price.
The bottom line is that stock splits don't add any inherent value to shareholders. Yes, the split results in more shares, but those shares are worth proportionately less, resulting in the same ultimate investment value.
- It's worth keeping an eye on Tesla's production and delivery figures
Tesla recently released its production and delivery figures for the first quarter of 2022. During the quarter, Tesla produced 305,407 and delivered 310,048 vehicles, an increase of 69% and 68% from last year, respectively. On the other hand, vehicle production was down 14% sequentially (compared to Q4 2021) and deliveries increased only slightly, by 0.5%.
These results can be viewed in two ways. The year-over-year growth is impressive, but the following boost could be a sign of a challenging 2022. Time will tell, but this is something to keep an eye on in the coming quarters.
- Challenges in China
Directly related to the aforementioned production and delivery figures are Tesla's problems in China. Due to the activation of the COVID-19 virus in the country, the Chinese government has imposed a strict isolation policy to contain the spread of the virus. This has had a significant impact on the Shanghai Tesla plant, which has been shut down for almost three weeks. The Shanghai Tesla plant produces about 2,100 cars a day, so production delays are rapidly building up.
Although the Shanghai plant only produces a smaller portion of Tesla's vehicles, the prolonged shutdown could have a significant impact on business, especially given the ever-increasing competition in the electric vehicle (EV) market. Customers looking to purchase an electric car could turn to competitors if Tesla's production problems lead to long delays in vehicle deliveries.
- Musk is all over the news, but not because of Tesla
As mentioned above, Tesla has been in the news a lot lately for reasons that have nothing to do with its business. Within weeks, Musk became Twitter's largest shareholder, was rumored to be on Twitter's board of directors, but then said he wasn't, and tried to buy Twitter for $43 billion in cash. By any reckoning, Musk's attention has been scattered lately.
Given that there are valid concerns about Tesla's manufacturing capacity, it would be appropriate to wonder if the company's CEO is paying enough attention to the business he runs. Management is an important factor in any investment decision, and Musk's leadership is worth considering when evaluating Tesla as an investment.
- Tesla's valuation depends on continued strong performance
All of these factors come down to how Tesla is valued as a company. Tesla's price-to-sales (P/S) ratio is currently 21. While this is down 30% from its recent high, the company is still highly valued compared to other automakers. Three companies with significant investments in electric vehicles -- Ford Motor Company, General Motors, and Volkswagen -- all trade below a P/S ratio of one.
Tesla is still the leader in electric vehicles, so one could argue that its valuation is justified. However, if the company's lead diminishes, either because of its own difficulties or the success of its competitors, the story will quickly change
As long as the price is above the 970.00 level, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 976.14
- Take Profit 1: 1050.00
- Take Profit 2: 1175.00
Alternative scenario:
If the 970.00 level is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 970.00
- Take Profit 1: 885.00
- Take Profit 2: 816.00
