Electric vehicle maker Tesla's (NASDAQ:TSLA) stock is picking up momentum again. After falling from a record high $900.40, hit intraday on Jan. 25, TSLA shares have gained 17% during the past three months, outperforming the benchmark NASDAQ 100 Index.
The biggest question Tesla bulls now have is, whether, on top of the current gains, can the EV manufacturer's stock push through back to the all-time high of $900 this year?
Given the highly volatile nature of the stock, it’s tough to predict whether the current Tesla rally has legs. But it’s important to note that the outlook for its car sales is becoming more uncertain than it was a year ago.
First, the global chip shortage continues to cast doubt on Tesla’s ambitious sales targets for 2021. Chief Executive Officer Elon Musk highlighted challenges that come from the unpredictability of chip supplies and the hurdles he expects in ramping production at two new factories in Austin, Texas, and Berlin, later this year.
Tesla again delayed delivery of its semi-trailer truck—already two years late. The first trucks of this type are now slated for 2022. The company attributed the delay to supply-chain issues and limited battery-cell supply, as well as management trying to focus on getting new factories online. The company’s plans for its first pickup truck, once expected to go to customers as early as this year, are also being affected by parts issues.
This is what Musk told analysts last month:
“While we’re making cars at full speed, the global chip-shortage situation remains quite serious. For the rest of this year, our growth rate will be determined by the slowest part in our supply chain.”
Regulatory Probe
Besides the risks to the market’s earnings consensus for this fiscal year, Tesla is facing a regulatory probe that could result in a massive recall.
The U.S. opened a formal investigation into Tesla’s Autopilot system last week after almost a dozen collisions involving first-responder vehicles. In the last seven years, Tesla has charged clients thousands of dollars for this feature.
The probe by the National Highway Traffic Safety Administration (NHTSA) covers an estimated 765,000 Tesla Model Y, X, S and 3 vehicles from the 2014 model year onward. The regulator—which has the power to deem cars defective and order recalls—said it launched the investigation after 11 crashes that resulted in 17 injuries and one fatality.
Bloomberg reported that Tesla has been criticized for years for labelling the system in a potentially misleading way. Since late 2016, it has marketed this higher-level functionality feature as Full Self-Driving Capability. In reality, Autopilot is a driver-assistance system that maintains vehicles’ speed and keeps them centered in lanes when engaged, though the driver is supposed to supervise at all times.
Tesla now sells that package of features—often referred to as FSD—for $10,000 or $199 a month.
After the NHTSA launched of the probe, two Democratic senators asked the Federal Trade Commission to also investigate Tesla over the company’s advertising of its Autopilot and FSD technology.
In a letter last Wednesday, Sen. Richard Blumenthal of Connecticut and Sen. Ed Markey of Massachusetts asked FTC Chair Lina Khan to examine whether Tesla used “potentially deceptive and unfair practices” in its marketing of those technologies.
“We fear that Tesla’s Autopilot and FSD features are not as mature and reliable as the company pitches to the public,” they wrote, pointing to comments from Musk, as well as a 2019 YouTube video entitled “Full Self-Driving” and has a link to Tesla’s site.
Highlighting these risks and how they could affect Tesla’s current stock price, however, shouldn’t hide the fact that there are many analysts who continue to remain bullish on TSLA. Piper Sandler reiterated its overweight rating on the stock and its price target of $1,200 this month.
In a note, analysts Alexander Potter and Winnie Dong said:
“Bottom line: We still really like this stock. Tesla is still the driving force behind higher [battery electric vehicle] penetration globally.”
Bottom Line
It’s difficult to predict the future course for Tesla stock given the huge amount of speculative interest in this name. But recent developments show that it will be quite hard for the EV automaker to exceed expectations in this tough manufacturing environment.
Investors should trade this name with caution.