Tesla (NASDAQ: TSLA) stock has been falling. Since the shares hit an all-time high of $1,243 at the beginning of November, they have plunged 25%.
Several factors have contributed to the sell-off. The company’s flamboyant founder Elon Musk has been selling shares to fund a multi-billion-dollar tax bill. This has put significant pressure on the stock price.
At the same time, market sentiment towards unprofitable high growth companies is changing. The US Federal Reserve and other central banks worldwide are planning to dial back on their pandemic policies over the next 12 months. This will involve higher interest rates and less money-printing.
Tesla stock under pressure
As a result of this central bank shift, equity valuations are beginning to fall back to earth. Unfortunately, this is also hitting Tesla shares.
However, unlike many other speculative technology stocks, this company is profitable and has a significant market share of the global electric vehicle (EV) market.
The company essentially dominates the EV market in the UK, holding a share of more than 30%.
In my opinion, this kind of brand strength and brand recognition is worth a premium, although I will admit I think the stock has gotten ahead of itself in recent weeks.
But for Tesla, the company’s exploding valuation has been nothing but good news. It has been able to use buoyant market sentiment to issue new shares and raise additional capital to fund its growth plans.
Therefore, the company’s success has become a bit of a self-fulfilling prophecy. A higher stock price has helped the organisation raise more capital, funding capital spending and driving output growth.
This is helping the corporation increase sales, which should ultimately lead to a higher share price as the business expands. A higher share price will allow the company to raise more money for growth… and so on.
This year, the group is targeting output of nearly one million vehicles. And further growth is planned over the next decade. Musk wants Tesla to be one of the largest car manufacturers in the world by 2030.
If it can hit this target, I think the company does look attractive as an investment at current levels.
Company risks
That said, there is a lot that can go wrong for Tesla stock between now and 2030. Supply chain disruption could have an impact on the vehicle manufacturer’s output.
Meanwhile, competitors are rapidly catching up. More established vehicle producers such as Volkswagen have been launching their own EVs. These are nipping away at Tesla’s market share. If these challenges continue to mount, the shares could keep falling.
Still, despite these risks, I would be happy to buy Tesla stock for my portfolio as a speciality growth play, considering the strength of its brand and expansion plans.
