It’s been a complicated week for the electric vehicle sector, and an especially tough week for its leader. Tesla (NASDAQ:TSLA) has seen plenty of turbulence, but could things be turning around? It seemed that way yesterday, as the Federal Reserve met to discuss the future of the economy and what investors could expect into the new year.
Some of the key takeaways from the meeting centered around the forecasts that 2022 will see multiple interest rate hikes as well as an accelerated tapering program. In other words, the Fed is looking to reverse course in order to combat rising consumer prices.
While these were not particularly surprising announcements, a more hawkish Fed will certainly impact financial markets in the coming year. Higher interest rates will pose the most significant risks to large-capitalization, growth-oriented companies. Tesla stock fits that bill perfectly.
The Road Ahead for Tesla Stock
Despite plans for rate hikes in 2022, it’s not hard to see why Tesla stock was able to start rising again in the short term. While the central bank made clear its commitments to tapering and raising interest rates in the name of taming inflation, it remained bullish on the economy as a whole. This likely compelled investors to jump back into stocks.
Importantly, investors have been largely viewing Tesla stock through a lens of caution. Elon Musk has spent recent weeks offloading shares. To at least one analyst, this is a sign Musk is betting on slower EV sector growth in 2022. It’s worth noting, though, that this analyst maintained his price target on Tesla stock.
All this has led to plenty of questions, especially as investors ponder the future of the EV sector, an area of the economy that was red hot for most of 2021.
The Bottom Line on TSLA
The question in this case is one of balance. How does one balance the Federal Reserve’s positive economic outlook with the negative projections forecast for the EV sector?
In the case of Tesla, it is difficult to say. However, it seems wise to consider the sector as a whole, as opposed to focusing solely on one company. While Tesla has always been at the top of the EV chain, consumers are being presented with increasingly more options, some of which produce EVs that are considerably more affordable.
Overall, it is unlikely that the decisions made by the Fed will affect Tesla stock directly. Instead, the company is likely to feel indirect effects from a higher-rate environment. For instance, consumers may change their financial habits, compelling them to seek more affordable alternatives for vehicles. Retail investors may also pull back their stock-buying activity in the new year. This comes as saving money brings increasingly attractive perks.
On the date of publication, Samuel O’Brient 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.
