The Tesla share price is down over 30% this year! Will it recover?

The Tesla share price is down 33% year-to-date. Here, Charlie Keough assesses whether now is the time to add the stock to his portfolio.

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It was only last November that we saw the Tesla (NASDAQ: TSLA) share price hit an all-time high of $1,243. However, since then investors have witnessed a reversal of its fine form. This year alone Tesla is down over 30%. And the stock is currently trading for $812.

So, will the electric vehicle (EV) manufacturer recover? And should I be buying some shares today? Let’s take a look.

Tesla share price history

Before looking at whether I would buy Tesla stock today, let’s start by looking at the recent history of the share price. At the outbreak of the Covid-19 pandemic, Tesla was changing hands for around $70. Yet by the end of the year, the shares had accelerated, rising an astronomical 725%, to nearly $720.

While this performance was not reciprocated in 2021, the tail end of the year saw the Tesla share price peak to its all-time high due to an agreement struck with rental company Hertz. The price then dipped again, however, closing the year at $1,056.

Should I buy?

So, does this present a buying opportunity for me? Well, there are a few factors I must consider before buying Tesla.

The main stumbling block for me is its high valuation. Tesla share currently trade on a price-to-earnings (P/E) ratio of around 165. Considering a good value P/E is deemed to be around or under 10, this shows just how overvalued the business currently is. A market correction could lead to a drop in the Tesla share price.

As well as this, the global rise in interest rates is having an adverse impact on growth stocks. Higher interest rates mean people can receive greater returns on their savings — and therefore, they are less likely to invest. In times like these, growth stocks are hit the hardest. This means if interest rates remain at their current level, or even rise further, we could see a continuation in the Tesla share price fall.

However, we will undoubtedly see a rise in demand for EVs in the future as more people make the transition to electric. And Tesla is in a strong position to capitalise on this given its major market share. This is seen through the demand for Tesla vehicles, which doesn’t seem to be slowing down. As my colleague Dan Appleby highlighted, the firm increased its deliveries of vehicles in 2021 to 936,172, representing an increase of 87% over 2020. Further, revenue grew 71% year on year. And it’s expected to grow by over 50% in 2022. From this, it’s clear to see how investors could be excited about Tesla.

Overall, as impressive as the figures posted by Tesla are, I find it hard to ignore the challenges the business faces. I think rising interest rates and the current economic uncertainty could lead to investors pulling money from volatile stocks. And I think the Tesla share price could take a hit. While the business also enjoys a large market share in the EV space, I deem its current valuation a big risk. Therefore, I’m not convinced it can recover quickly and I won’t be buying Tesla stock for now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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