When compared to the broader market, Tesla (NASDAQ:) has been an underperformer for much of this year. Investors soured on the world’s largest electric vehicle maker amid growing competitive threats from traditional automakers, signs of a potential sales slowdown in China, and an ongoing semiconductor shortage.
But during the past one month, there are indications that the bearish spell in Tesla stock has run its course and investors are taking advantage of its current weakness. Shares of the Palo Alto, California-based EV producer have gained more than 13% over the one month period, almost wiping out the stock’s year-to-date losses. TSLA closed on Friday at $678.90, down about 4% for the year.
For Tesla bulls, perhaps the best thing about the current rebound is that the stock’s momentum is backed by a number of positive catalysts. The company on Friday that it delivered 201,250 cars worldwide in the second quarter, a record number despite chip shortages and concerns about the fall-off in its China market.
The bulk of sales during the period were for the Model 3 sedan and the Model Y crossover, which are produced in Shanghai and Fremont, California. Those countries are Tesla’s biggest markets. This strong delivery performance is an indication that CEO Elon Musk is likely to report another when the company releases its second-quarter financial results later this month.
In a note to clients, Wedbush Securities analyst Daniel Ives said:
“This quarter was an impressive performance from Musk & Co. and now with a strong second-half performance should be able to hit ~900k vehicles for the year, which was a major stretch goal.”
Along with Tesla continuing to produce additional vehicles each quarter, the improved sentiment overall for growth stocks is also helping.
Mega-cap tech names like Facebook (NASDAQ:), Alphabet (NASDAQ:) and Microsoft (NASDAQ:) are back near records as inflation fears ease and prospects for technology stocks improve as the re-opening of the U.S. economy gains steam.
Analysts Divided On Tesla
Despite these positive signs, analysts on Wall Street remain split about the stock’s performance this year after its more than 700% rally in 2020. Of 24 analysts covering the stocks, 10 recommend a buy, 7 favor a sell and an equal number are calling for a hold. The average price target represents a 10.39% decline from the last price of $678.90, according to TipRanks.
UBS analysts in a recent note explained that the growing competition in the EV market is one key impetus for why some of the shine has faded from Tesla shares this year.
“Our key concern shorter-term is that Tesla’s demand momentum in China is slowing, and our checks on the ground suggest that [battery electric vehicles] from domestic brands are gaining further ground vs. Tesla, which may trigger additional pricing action by Tesla and consequently lower gross margins,” UBS’s Patrick Hummel said in a recent note.
Hummel, while maintaining a neutral rating on the stock and reducing his price target on Tesla to $660 per share from $730 per share, said pressure from other EV makers will continue to weigh on the company. His note adds:
“Valuation-wise, the EV launches from competitors with high range, charging performance and attractive value-for-money, could continue to weigh on the value the market is willing to assign to Tesla’s long-term growth.”
Bottom Line
The short-term outlook for Tesla has brightened after the company produced more cars in Q2 than analysts were expecting. That shows it’s been succeeding in overcoming supply-chain issues which are hurting other traditional automakers.
This impressive performance, however, may not be enough to push the stock much higher from current levels amid concerns about the growing competition.