Why Tesla Fell This Week
Another week, another market sell off. Tesla (NASDAQ:TSLA) has been one of the whipping boys of the growth weakness as of late. Shares of the electric vehicle industry leader are down a staggering 6.93% this week and more than 28% so far in 2022. Even despite a strong earnings report in January and record vehicle deliveries, the stock has not been able to escape the ire of the market.
The past two weeks haven’t been great for Tesla. A series of recalls has the EV maker seemingly in the bad books with the NHTSA. The most recent recall on Thursday of this week was for another safety hazard. Tesla vehicles equipped with a boombox feature which blasts music on the exterior of the car, is loud enough to drown out the Pedestrian Warning System. These kinds of safety hazards are no-brainers to fix, but the market seems to be treating Tesla recalls like other automaker recalls. This, as we know, is simply not the case.
Tesla is able to deliver OTA or Over the Air software updates, similar to updates to your computer or smartphone. Every recall for Tesla this year has been able to be resolved through OTA software updates and patches. Does that really call for a near 7.0% drop in the stock price? Not in my opinion.
The company was also hit with a racial discrimination lawsuit from Black employees on Friday. While it is not something that I can comment on, we have seen previous stock drops from human resources related issues at companies. Most notably, Activision Blizzard (NASDAQ:ATVI) and it’s mistreatment of female employees last year comes to mind. I get it. The last thing Tesla needs is more bad publicity right now, but these things also tend to be short-term catalysts.
Tesla Stock Outlook for 2022
In times of downward pressure, investors need to act more like institutions which take the opportunity on every dip. Earlier this week, Vanguard added to its stake in Tesla on the weakness of its stock. The investment company now owns over 6.0% of Tesla’s total shares or over 62 million in total. Remember that Wall Street analysts for these institutions are also extremely bullish on Tesla. The stock still has a median 2022 price target of $1,105.58 according to TipRanks, which represents a near 30% upside from this week’s closing price.
I know that price targets are not always indicative of stock movement. Personally, I don’t always follow the exact targets but I do like to use the sentiment of these analysts as an indicator of potential future performance. Tesla analysts are still bullish, the company just had a blowout quarter, and uses very little actual capital to remedy these recalls. On top of that, the stock is depressed due to the ongoing tech and growth weakness, particularly with rising interest rates from the Federal Reserve and also higher than expected inflation levels. The short-term pain has done more damage to the stock than it deserves, and I believe it is setting up for even higher long-term gains.
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