Tesla (NASDAQ:TSLA) plunged 8.33% yesterday and is down .35% on the day to $864.82 per share after a market selloff triggered by investor concerns over monetary policy and the global economy’s growth pace. TSLA stock is, however, well-positioned to face rising interest rates and inflation. This is due to its strong operating performance, robust pricing power, and lifting demand for its vehicles. Additionally, electric vehicles (EVs) will only get more attractive with surging oil prices.
In the past months, TSLA increased the price of its vehicles throughout its entire vehicle lineup to cope with rising commodity prices and lifting inflation. The operating margin of the electric vehicle manufacturer has gone up in 2022, reaching 12.1% and lifted to 19.2% in the first quarter (Q1) of 2022. Higher EV prices might discourage customers from purchasing Tesla’s vehicles.
However, demand for Tesla’s EVs should remain sustained with high oil prices. Total EV deliveries jumped 68% year-over-year to 310,048 in Q1 2022. The company plans to achieve 50% average annual growth in vehicle deliveries in the next years. Supply chain issues might pose some challenges to Tesla’s manufacturing capacity in the next few quarters, which might trigger short-term selling pressure on the stock.
Nevertheless, the leading EV carmaker is projected to grow its top line at a fast clip in the next two years, up 61.3% to $86.7 billion in 2022 and 31.8% to $114.3 billion in 2023. On the other hand, net income is estimated to surge 130.1% this year to $12.6 billion, offering an enhancing profit margin of 14.6%, up 430 basis points year-over-year.
The valuation of TSLA stock remains elevated, trading at a forward enterprise-value-to-EBITDA rate of 41.9x and a 2022e price-to-earnings ratio of 81.3x. However, with the rapid growth of the EV carmaker, its ability to pass rising costs to customers and strong demand for its EVs makes this company a long-term buy.
On the date of publication, Cristian Docan 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.
