The Tesla (NASDAQ: TSLA) share price has had a dire 2022. Down 40% year-to-date, investor confidence surrounding the electric vehicle manufacturer has been squeezed by growing macroeconomic concerns.
However, yesterday offered a glimmer of hope as the stock rose 9%. So, is this the start of the road to recovery? And should I be buying Tesla shares today? Let’s find out.
The Tesla share price in 2022
Tesla’s trajectory over the past five years has been extraordinary. The stock has returned 845% within this period. So it’s a top performers over this timeframe. However, this year has seen a reversal of this impressive growth. One of the main reasons for this is rising inflation. Spiking rates dampen confidence in future company earnings. And with interest rates also jumping this year, these combined factors have driven the Tesla share price down.
However, yesterday saw that small revival in the stock’s price as CEO Elon Musk expanded on a statement he’d made earlier this month about cutting Tesla’s workforce. The firm had been expected to lay off 10% of its salaried employees. And while this will still be the case, Musk said yesterday that Tesla will continue to hire hourly workers. As a result, the layoffs will now add up to just 3.5% of the workforce. With investors clearly happy about this news, the stock jumped.
While the above is clearly good news, I still have some concerns.
First, the major issue I have with Tesla is its high valuation. With a current price-to-earnings (P/E) ratio of 98, I think Tesla is overvalued. For comparison, rival General Motors has a P/E of just 5.44. And this puts me off when I think about adding Tesla shares to my portfolio.
Another issue I have is competition. Although Tesla is an established manufacturer, as rival firms make the inevitable transition into the EV space, it may struggle to hold on to its market-leading position. This threat can already be seen with Ford, which recently made a pledge to be all-electric by 2030.
However, Tesla is still in a strong position. Despite supply chain issues, the firm managed to produce over 305,000 vehicles and deliver 310,000 of them in Q1. On top of this, revenues also increased 87% year-on-year for the period. Given the tough conditions Tesla has faced, these results show the strength of the business.
What also excites me is the opening of its gigafactory in Berlin. This move will allow the company to expand into Europe, with the factory able to produce 500,000 vehicles every year. Should the firm keep up this strong growth, I’d expect this to lead to a rise in the Tesla share price.
Should I buy?
Tesla’s growth has been impressive. And the announcement by Musk yesterday could be the start of the stock’s revival. However, I won’t be buying Tesla shares today. The firm faces too many challenges for me. And with competition set to heat up, I’m going to hold off buying for the time being.