Shares in Elon Musk’s flagship automobile brand Tesla are trading toward the $1,000 mark again this year, after having fallen from their all-time high in the closing months of 2021.
The stock began a rise of more than 50% in the middle of March, going from a low of $766 on the fourteenth of the month to a high of $1,145 just 21 days later.
As such, there appears to have been three key catalysts that moved the needle on Tesla stock in 2022. Let’s take a closer look at these, and then figure out if the company is still a buy at its current price.
Catalyst #1: Tesla Opens Its New Berlin Gigafactory
Elon Musk finally got round to cutting the ribbon on Tesla’s German “gigafactory” in March, after the plant’s opening was delayed for eight months due to licensing problems in the country.
The company expects the €5 billion complex to pump out 500,000 vehicles per year, as well as produce batteries at an annual rate of 50 GWh (gigawatt-hours).
Catalyst #2: Aggressive Price Policy Initiatives
The pressure on raw material prices arising from the global supply chain crisis threatened to put the squeeze on Tesla in Q1, not least because the company was particularly exposed to rising nickel and lithium carbonate costs through its electric battery operations.
However, Musk was equal to the challenge, and didn’t hesitate to raise his own prices twice in a matter of days. This course of action seemed to please investors no end, and likely played a role in the stock’s price movement during the month too.
Catalyst #3: An Imminent Stock Split On The Horizon?
Maybe not as concrete a catalyst as the previous two, but news that Tesla was to push ahead with a stock split later in the year helped buoy the car maker’s share price in March as well.
Indeed, the firm’s stock rose 8% higher in the days immediately following the announcement – more, in fact, than it did after the factory opening just a week before.
Source: Unsplash
Is Tesla Overvalued?
In addition to the three catalysts that propelled Tesla forward in March, the company also benefited from a slew of other tailwinds which combined to give the San Carlos-based automotive brand a unique advantage over its peers.
This is important because the current economic environment isn’t necessarily conducive to the success of a high-growth business like Tesla’s, with high inflation and growing interest rates often the death knell for others firms of its kind.
However, the company’s many and varied business moats give it a distinct edge on the competition here.
To begin with, the recent hike in oil and gas prices are a great advertisement – and proof of concept – for the utility of Tesla’s electric-powered vehicles.
As one of the leading brands in the “anti-fossil fuels” space, rising gas costs demonstrate to any still-cynical members of the public that Tesla’s cars are, if nothing else, a financially attractive form of personal transportation, as well as a hedge against spiraling hydrocarbon fuel prices too.
Tesla Has a Wide Moat
But there’s more; Tesla’s vertically-integrated business stack is a moat in-and-of itself.
The company isn’t just a car manufacturer – it runs its own Supercharger network, its own mall stores and its own mobile ranger service as well.
It also enjoys a brand loyalty that’s shored up by one of the most charismatic leaders in the business world today, and it has a raft of peripheral ventures that are all working toward the success of the company’s core product as whole – such as Tesla Energy and Autopilot, for instance.
1st Mover Advantage
It’s developed excellent partnerships along the way, too, notably those with Panasonic and Piedmont Lithium – and, perhaps most crucially, Tesla has the first-mover advantage in what is rapidly becoming a multi-trillion dollar industry.
If Tesla is going to be a success in the future, and ultimately justify its current valuation, it’s going to have to outperform expectations – because many of those expectations are already baked into its price right now.
Fortunately, however, Tesla’s financial metrics point to a company in rude health. The firm’s year-on-year revenue growth is excellent at 71%, while its forward EBITDA growth rate is also stellar at 105%.
Surprisingly for a business that’s so heavily involved in R&D, Tesla’s capital expenditure-to-sales ratio is also high at 14.9%, which compares favorably to the sector median of just 2.6%.
And while Tesla’s cash-generating exploits are semi-legendary, it’s still quite amazing to think that its cash from operations of $11.5 billion is over 7,000% that of the industry average. That said, the firm doesn’t do so well on a strictly value-based appraisal, with a GAAP P/E multiple just shy of an eye-watering 200-times.
The Bear Thesis
Despite the generally optimistic outlook for Tesla, there are a few obstacles on the path forward that could scupper its plans for the future. Principal among these is the idea that the firm is more a tech company than just a car manufacturer, and that the valuation that it commands justifies its high price premium.
In fact, Tesla now has a market cap of over $1 trillion – which, if it was just a simple automotive play, would seem somewhat inflated. For example, the next closest car company to Tesla is the Japanese outfit Toyota, whose market capitalization of just under $229 billion is less than a quarter of its American rival.
But is Tesla really as diversified as it pretends to be?
One contention here is that its well-hyped battery business isn’t as advanced as first thought, and has had its own problems lately.
The answer to this will no doubt resolve itself in time, but should remain a worry for potential investors until that question is finally answered.
Is Tesla Still A Buy?
Elon Musk is always going to divide public opinion, and much of what informs people’s view of Tesla as a company often comes down to personal taste.
But in the cold, hard light of day, Tesla is still the market leader in the EV space, and that isn’t going to change anytime soon.
The company has begun to deliver in ways that were once thought impossible only a couple of years ago – and there’s no reason to think this isn’t going to continue.
So yes, for now at least, Tesla’s still a buy.
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