Electric vehicle maker Tesla’s (NASDAQ:TSLA) stock is starting to look attractive as it slides toward $750 per share.
The world’s leading electric vehicle maker remains in the headlines for a number of issues. Take your pick. You’ve got the U.S. National Highway Traffic Safety Administration’s (NHTSA) formal investigation into 416,000 Tesla vehicles on unexpected brake activation. There’s CEO Elon Musk continuing to comment on cryptocurrencies via social media.
Then this week, production was shut down in its Shanghai Gigafactory as the region deals with an outbreak of the latest variant of Covid-19.
These issues, along with a sharp selloff in technology stocks, have brought TSLA stock down 21% year to date to $840 a share.
Expanding Production
Tesla has been working double time to overcome a number of problems that continue to plague the global automotive industry. These include a worldwide shortage of semiconductor chips, supply chain constraints, and higher prices for everything from rubber to aluminum.
To its credit, Tesla has managed these issues better than most others. In fact, the EV maker announced along with its fourth quarter earnings in early March that it forecasts deliveries will grow at or above 50% this year.
That strong forward guidance caught the attention of a lot of analysts and generated quite a few headlines, coming as it does during what is viewed as a very challenging year for automakers.
To help it achieve its objectives, Tesla is breaking ground this month (March 2022) on a new manufacturing plant in Shanghai that will more than double its production capacity once it comes online, giving the company the capacity to produce up to two million electric vehicles per year.
The new production plant will be based near Tesla’s existing manufacturing plant in Lingang, Pudong. Tesla’s existing Shanghai plant currently makes the Tesla Model 3 sedan and the Model Y crossover vehicle.
This week’s shutdown notwithstanding, Tesla has said it plans to take its weekly production in Shanghai up to 22,000 vehicles within the next few months.
Tesla sales in China have surged and the Shanghai factory has become a crucial export hub to global markets such as Germany and Japan. Last year, the company’s China-made cars accounted for around half of the 936,000 vehicles it delivered globally.
Tesla’s revenue in the world’s second-biggest economy doubled in 2021 to $13.8 billion from the previous year. Elon Musk said last October that Tesla’s Shanghai plant has now surpassed its Fremont, California factory, the company’s very first manufacturing plant, in terms of output.
Raising Prices
To help it overcome inflation that is running at a 40-year higher, Tesla is raising prices for its bestselling Model Y SUV and Model 3 long range sedan by $1,000 each.
The company has increased its prices on the most affordable versions of its Model 3 and Model Y vehicles about a dozen times last year in America. Tesla is now increasing prices for some of its China-made Model 3 and Model Y vehicles by 10,000 yuan (~$1,500).
The U.S. price of the Model Y long range car is now 20% above the January 2021 ticket. The latest price hike comes amid surging raw material costs, notably for nickel, lithium and other materials that are part of modern electric vehicles.
The surge in commodity prices has been made worse by Russia’s invasion of Ukraine, and Elon Musk has acknowledged that the sharp rise in prices is likely to delay his dream of introducing more affordable electric vehicles to consumers.
Prices for electric vehicle batteries, in particular, are soaring as lithium prices climb to multi-year highs. The average price of a Tesla Model 3, the company’s most affordable electric vehicle, is currently $47,690.
Still, despite all the hurdles, Tesla’s production continues to ramp and scale. The company reported that its fourth-quarter vehicle production was up 70% from a year earlier and its deliveries rose 71% from the final three months of 2020. The forecast of a 50% increase in vehicle deliveries on top of last year’s growth is impressive. And with the stock down nearly 40% from its 52-week high of $1,243.49, the share price is starting to look enticing.
Of course, TSLA stock still has an extremely high price-to-earnings ratio of 171.44, making it richly valued despite its pullback this year.
Keep TSLA Stock on Your Watchlist
TSLA stock investors own a piece of what continues to be the world’s leading electric vehicle maker that manages to thrive no matter what obstacles are put in its path.
That said, the company’s stock is falling with no indications it has reached a bottom. While the share price looks attractive near $750 a share, it will look even better at $600 or closer to $500 per share.
Will it get that low? Nobody knows. But the selloff in technology stocks shows no signs of slowing down right now. As such, investors should keep Tesla on their watch list and be ready to take a position once the share price hits rock bottom.
For the time being, TSLA stock is not a buy.
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.
