Will Tesla Stock Go up Further in 2022?
Tesla stock price is too high imo
– Elon Musk
This was a tweet of Elon Musk, CEO of Tesla, Inc. on 1st May 2020 (US time). On that day, the TSLA stock price hit a high of 154.55 and closed at 140.26. Within two years since then, it surged approximately 700%, recording the all-time closing high of 1,229.91 on 4th November 2021. The growth rate from 2017 to 2021 was an enormous 1,500%. Now, will Tesla stock go up further to make a new record high in 2022, or is it already too expensive?
TSLA Dropped since the Start of 2022
After surging on the first trading day 3rd January, the TSLA stock price has dropped steadily until it closed at 764.04 on 23rd February 2022. That was the lowest closing value since 23rd September 2021. And the drop was more than -35% from the beginning of 2022 to the day.
What pushed down the share price? There are many elements affecting the drops: Tesla’s high Beta, investors’ fear of Federal Reserve’s interest rate hikes, the 2021 Q4 earnings call, the Russia-Ukraine crisis, and so on. But one explanation would be investors might be seeing TSLA as an overvalued stock.
Is TSLA Overvalued?
Our previous article “What Does an Overvalued Stock Mean?| Is Google Overvalued?” has quoted the definition of an overvalued stock from Investopedia before. But let me do it again here (Please skip this section of you already know!):
An overvalued stock has a current price that is not justified by its earnings outlook, known as profit projections, or its price-earnings (P/E) ratio. Consequently, analysts and other economic experts expect the price to drop eventually.
A company can be considered to be an overvalued company at a P/E ratio of 50. If a company has a P/E ratio less than 10, then it can be undervalued. Keeping this in mind, here is the historical P/E ratios of TSLA.
Tesla's Historical P/E Ratio (From 31st March 2020)
| Date | PE Ratio |
|---|---|
| 3/31/2020 | 0 |
| 6/30/2020 | 562.4 |
| 9/30/2020 | 861.47 |
| 12/31/2020 | 1127.27 |
| 3/31/2021 | 667.93 |
| 6/30/2021 | 354.01 |
| 9/30/2021 | 250.96 |
| 12/31/2021 | 215.67 |
| 2/28/2022 | 177.64 |
The P/E ratios of Tesla has been sky-high—especially if compared with its peer group: Google at 23.24, Apple at 27.7, Microsoft at 30.66, Meta at 14.94, and Amazon at 47.11. The lofty P/E ratio can mean the company is overvalued. Looking solely at the P/E ratio and its definition, one could say: Tesla is possibly overvalued. Consequently, the price may be dropping.
TSLA Is Too High IMO but It Can Still Go Up
So, will Tesla stock go up in 2022? Although the stock price is temporarily going down, there seems to be enough promise for the future. The company has enough room for further growth.
Tesla: The Leading Company in the Growing Industry
The high P/E ratio can also mean that investors are expecting high growth from the company as the electric vehicle market is expected to grow. According to the Growth Market Reports, a leading market researching firm, the global EV market is estimated to expand to US 802.75 billion by 2028 from USD 273.31 billion in 2020.
InsideEVs, the world’s largest EV-focused information publisher, disclosed the top five EV companies by sales for 2021. According to the rankings, Tesla was the leading company for both plug-in EVs (PHEV) and all-electric cars (BEV). 14.4% of PHEVs and 21% of BEVs sold in 2021 was Tesla.
Tesla Is the Only Profitable Company in the EV Markers
Although EVs demand is surging, there is currently only one EV company that is profitable: Tesla. Let us show the net income of the top five largest EV companies by market cap; Tesla, Rivian, Lucid Motors, NIO, and XPeng. Tesla’s operating income for 2021 Q3 was $2.04 billion. Meanwhile, Rivian recorded -$766 million, Lucid Motors -$497.05 million, NIO -$991.92 million, and XPeng -$1.8 billion losses. Everyone except Tesla failed to make profits as of 2021 Q3.
Not only dominating the EV market amid competition with other automakers such as Volkswagen and General Motors, Tesla is making a huge amount of profit. And it turned profitable as recently as in 2020.
Tesla Secures Factories across Important Markets
Although it has been only a few years since Tesla marked profits, the company already has its wings over the important markets across the globe—Europe and Asia, not to mention the North America. As of March 2022, it operates 6 factories in the United States, 2 in Canada, 3 in Germany, and 2 in China. Among them, Giga Factories are in Nevada and New York in the US and in Shanghai, China.
Furthermore, Tesla is moving forward to open several new factories in coming years. A new Giga Factory in Germany is reportedly in the final phase of approval process. Additionally, Tesla reportedly plans to build a new factory in Shanghai to double the capacity in China.
The Bottomline: Will Tesla Stock Go up?
With all these positive factors in consideration, the drop we saw at the start of this year can be temporary. Stocks by and large plunged in the wake of the Russian-Ukraine crisis. However, a research by Swiss Finance Institute suggests that “in cases when there is a pre-war phase, an increase in the war likelihood tends to decrease stock prices, but the ultimate outbreak of a war increases them.” This could mean that the plunged stocks could bounce despite the disquieting world situations, if investors see opportunities and potential in the company. And Tesla may have enough promise for further growth in the swiftly growing EV market.
