Having outperformed the market during a volatile September, Tesla (NASDAQ:TSLA) stock looks poised to break out again.
Year-to-date, TSLA stock is up 6% at $774. This follows a 900% gain last year.
Tesla’s share price is currently below its 52-week high of $900 and has gained 6% over the past month. This is better than the benchmark S&P 500 stock index, which is down 0.68% since the end of August.
The recovery in Tesla stock could signal the beginning of a new bull run after the shares have cooled and consolidated for most of the year. While the electric car manufacturer and its CEO Elon Musk continue to polarize investors, many on Wall Street feel that the company’s stock is ready to again test new all-time highs.
While critics and short sellers continue to disparage Tesla, the company remains on a roll. In fact, Tesla reported blowout earnings at the end of July at a time when a global shortage of semiconductor chips is roiling the automotive industry.
The chip shortage forced major manufacturers such as General Motors (NYSE:GM) and Ford (NYSE:F) to halt production and revise down their projections. Tesla reported more than $1 billion in net income for the second quarter, up tenfold from a year earlier.
The company announced Q2 revenue of $11.96 billion compared to $11.30 billion that analysts had expected. Earnings per share (EPS) came in at $1.45 versus $0.98 forecast by analysts.
Perhaps most importantly, Tesla’s total revenue from automotive sales came in at $10.21 billion, of which only $354 million, or 3.5%, came from regulatory credits. That’s a lower number from regulatory credits than ever before.
What makes this a is positive development is that the money Tesla gets from regulatory credits has been a prime target for critics. Bears claim TSLA stock is overvalued and its share price is unsustainable because it relies too heavily on government subsidies.
The stellar second-quarter results leading into August were the catalyst that prompted TSLA stock to begin rebounding from its lows this year.
Influential Bulls and TSLA Stock
Several analysts have been upgrading Tesla stock and their price projections since the end of the summer on the strength of the company’s performance.
Several of the biggest bulls are among the most influential people on Wall Street, including Ark Invest’s Cathie Wood who focuses exclusively on disruptive technologies.
Wood owns more shares of TSLA stock than any other company across her various exchange traded funds (ETFs). She has said recently that she believes Tesla shares could be worth $3,000 by 2025.
Wood’s forecast for TSLA stock is based on estimates that the company could be selling as many as 10 million vehicles per year by 2025. The company may achieve that target now that it has broken ground on its new “megafactory,” a vehicle production facility located in Lathrop, Calif.
The factory will manufacture Tesla’s Megapacks, its biggest batteries for stationary energy storage, in addition to its various electric vehicles. While the company faces growing competition from around the world, it remains a leading electric vehicle manufacturer.
China & Investigations
If there are speed bumps on the road ahead for Tesla, they are ongoing issues the company faces abroad in China and with regulators at home in the U.S.
In China, Tesla is grappling with increased competition from Chinese automakers, a massive recall of nearly all of the vehicles made at its Shanghai facility and criticism from the country’s political leaders.
The result is that Tesla’s sales in the world’s biggest car market have plummeted. The China Passenger Car Association reported that Tesla’s sales in China dropped to 8,621 cars in July, down 70% from June.
At home in the U.S., Tesla is contending with several investigations into crashes of its vehicles by the National Transportation Safety Board (NTSB), as well as critical reviews of the company’s full self-driving feature that it hopes to roll out this autumn.
The regulatory body has said publicly that Tesla should address “basic safety issues” before expanding its full self-driving mode and called the feature “misleading and irresponsible.”
This came after several Tesla vehicles crashed while in self-driving mode. The investigations and negative comments have given Tesla bad publicity on the home front and led to questions about the company’s safety record.
Buy TSLA Stock Before It Breaks Out
While it is not a perfect company, TSLA stock has proven to be a winner. It has delivered huge returns to investors, and while Tesla stock has been stalled for the better part of this year, it once again looks ready for a breakout.
Given its strong electric vehicle sales, impressive earnings, and declining reliance on regulatory credits, Tesla is worth an investor’s capital. While the company still has some issues to manage, it has proven that it can weather various storms and come out stronger on the other side. TSLA stock is a buy.
Disclosure: On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.