Another Tough Week for Tesla
It remains the most polarizing stock on the US markets, but so far in 2022, Tesla (NASDAQ:TSLA) bears are certainly winning the argument. It was another tough week for the EV industry leader as the stock fell a further 13.5% as the market cap for the company dips below $700 billion.
The stock continues to be a gauge of how the public and the markets perceive CEO Elon Musk. This week, not only has Musk continued to pursue his acquisition of Twitter (NYSE:TWTR), but allegations of sexual misconduct against a SpaceX employee surfaced on Friday. While Musk denies the allegations, it was revealed that the company also paid the victim $250,000 for a non-disclosure agreement.
But surely allegations of misconduct against Musk aren’t the reason Tesla is falling? We know analysts are expecting a weak quarter after the company was forced to shut down its Shanghai GigaFactory in April. But the ongoing supply chain issues and unreliability of Chinese production has led to several recent analyst downgrades for the stock, including one from long-time Tesla bull, Dan Ives of Wedbush.
Is Tesla Still a Buy?
The problem with a bear market is that nobody really knows how it will behave and when it will end. The average bear market has lasted for just under a year or about 338 days. So far, we’re sitting at about half a year although stronger macroeconomic headwinds certainly exist right now then in previous bear markets. Still, the multiple compression has hit Tesla hard and the stock is now trading at a price to sales ratio that is nearing single digits and a forward revenue multiple of about 6.
The company is still confident it can grow its production by 50% this year, especially as the Texas and Berlin GigaFactories continue to scale up activities. A recent report showed that EV adoption is steadily rising in the US, with the market seeing a 60% year over year rise in the first quarter. A staggering 70% of the US market is dominated by Tesla, as EV sales rose to 5% of all vehicle sales in America which is the highest level ever. So why is it still so hard to stay bullish on the stock?
In my mind, Tesla is still a buy. I once read that if your investment thesis for the company hasn’t changed, then neither should your conviction in the stock. For those who missed out on investing in Tesla over the past couple of years, you might be getting another chance right now. While short-term headwinds continue to affect the stock performance, zoom out and look five or ten years into the future.
There is a reason Tesla has always traded at a premium. It is the undisputed industry leader in a rapidly emerging market. US EV sales could be 5% today but in ten years, that number is expected to grow to more than 50%. In ten years, I see Tesla as strong as ever and so I would be looking at this current downtrend to start a position or dollar cost average into an existing one.
Rate this article