We all got used to watching the progress of the electric vehicle race in 2021. Industry leaders made further innovations and new startups made market history with impressive trading debuts. Now, a new year is gearing up, but some experts predict the race may be slowing. Today, Bank of America Securities issued a report that predicts that the EV sector is approaching a tipping point. For companies like Tesla (NASDAQ:TSLA), this type of coverage raises plenty of questions. And while the report stressed that this tipping point means bad news for Tesla stock, investors shouldn’t panic.
What’s Happening With Tesla Stock
In a nice change of pace for investors, Tesla stock is back in the green today. After spending the bulk of this week creeping steadily downward, it is up more than 3%.
But how does the Bank of America report fit in to the equation?
Well, the report’s predictions aren’t all negative. On the contrary, it predicts that EV sales will rise by 6% in the coming year. In the following two years, it says that they will continue rising by 11% and 16%, respectively.
The bad news for Tesla stock is that the report also predicts that the company’s market share will fall to just 19% by 2024. That’s hardly reassuring for investors.
Let’s take a look at the bigger picture, though. There’s no immediate reason to assume that Tesla stock is going to fair as poorly as BofA’s analysts predict.
Why It Matters
Every red-hot industry inevitably reaches a tipping point. The report isn’t wrong about that. And yes, the EV sector is probably due for one within the years to come. We saw sales explode in 2021 and sales aren’t likely to slow down in 2022. American consumer interest in EVs was at 71% at the end of 2021. That doesn’t instantly mean that we’re going to see that many people buy them. But it does hint at a future in which sales are increasing. In that future, Tesla has plenty of assets that can help it maintain its spot atop the EV race.
The BofA team’s main concern regarding Tesla stock seems to be the potential for huge market share loss. Its logic that Tesla will see it diminish so severely simply due to increasing competition is flawed, though.
Yes, more EV startups such as Rivian (NASDAQ:RIVN) are working hard to compete with Tesla. That doesn’t mean that they will take away that much market share from the industry’s leader. Rivian’s electric trucks and SUVs will appeal to a different type of consumer than those purchasing Tesla’s four-door sedans.
The only other EV company offering Tesla any serious competition as far as driver car sales will be Lucid (NASDAQ:LCID). While Lucid’s sleek vehicles do generate quite a bit of interest, the company has been slow with the rollout of the highly anticipated Lucid Air. It will take time for the vehicle to sell enough to cut into Tesla’s market share. While Ford (NYSE:F) and Toyota (NYSE:TM) are also working to compete with Tesla, dedicated EV aficionados will be drawn toward the companies known for EV innovation. If the Tesla Model Y is as close as it seems to be to ramped up output, that will help Tesla continue its lead in deliveries.
Additionally, EV producers are currently facing an industry landscape where manufacturing constraints pose a constant threat. Tesla proved it could keep pace with demand when it shattered Wall Street expectations with its 2021 Q4 delivery statistics. The company is also making progress on the battery front. It has secured partnerships with companies in the battery minerals spaces and has proven that it has no intentions of slowing down. As InvestorPlace Markets Analyst Joanna Makris noted, its size gives it an important advantage here.
What It Means
The EV sector may indeed reach a tipping point, but it is unlikely to be bad news for Tesla stock. Analysts from other firms such as Piper Sander and Jefferies still rate the stock as a buy and hold high price targets.
Some EV producers will likely face constraints in the year ahead, but Tesla is unlikely to be among them. The company is well positioned at the front of the EV race and it intends to stay there.
On the date of publication, Samuel O’Brient did not hold (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.