On 3 January, Tesla shares briefly traded below $105. At the moment, the share price sits just below $200. So within the space of a couple of months, the price has almost doubled in value.
Yet with the stock still sitting down 35% from where it was a year ago, there’s the potential for further gains later this year. Here’s my take on what I’ll do.
A reversal in fortunes
Q4 was an odd period for Tesla as a business. It was caught up with multiple problems that caused the share price to finish the year tumbling. At the time, the charismatic Elon Musk’s attention was divided following his acquisition of Twitter, with some unhappy he had taken his eye off the Tesla ball.
The business also started to miss expectations on delivery numbers relative to analyst forecasts. In fact, the Q4 numbers were the third miss in a row. Concerns around lower demand from China and what that could mean for 2023 also spooked some investors.
This negative sentiment quickly reversed as we hit January. There’s a good argument to be made that, at $105, the stock was simply too undervalued to stay there for long. Buyers snapped up the stock quickly at the opening of 2023.
The stock was also carried higher by broader positive market sentiment. The NASDAQ 100 jumped almost 10% in January. This was due to investors cheering the possibility of lower inflation and interest rates nearing a peak.
Thoughts for the rest of the year
Let’s take my thoughts on the overall market first. I do think we’ll have a strong global economic recovery and bull market in 2024 and beyond. But I’m not sure the rally so far this year is completely justified.
The US Fed is forecast to raise interest rates another three times this year and I feel the US economy could struggle under the weight of 5%+ interest rates. Therefore, I think we could see another dip in the stock market before it moves higher again.
In terms of Tesla-specific news, I think how demand unfolds in China will be key to financial success this year. Supply chain issues and Covid-19 restrictions in the Shanghai factory shouldn’t be a problem going forward.
The business is also rumoured to be building a new factory in Mexico. Capacity for more production is clearly there, but recent price cuts in Asia show that demand currently isn’t that strong.
When I put that all together, what do I get? The rally in Tesla shares is very impressive. Yet the fact it’s still heavily down over the past year indicates to me that not everyone is positive right now. Given my concerns about the state of the US economy and how strong demand for Teslas are in Asia, I don’t feel I’ll be jumping on the bandwagon.
It’s not that I don’t see long-term value in the stock, but I think I can get better levels to buy at in the coming months.
