Shares of electric vehicle manufacturer Tesla (NASDAQ:) are picking up again. After falling from a record high of $900.40 reached intraday on Jan. 25, TSLA shares are up 17% over the past three months, outperforming the benchmark index.
The biggest question Tesla bulls have right now is whether, on top of current gains, can the EV maker's stock push back to its all-time high of $900 this year?
Given the highly volatile nature of the stock, it is difficult to predict whether the current Tesla rally has legs. But it is important to note that the outlook for 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 2021 sales targets. Chief Executive Officer Elon Musk highlighted the challenges posed by the unpredictability of chip supply and the hurdles he foresees in ramping up production in two new plants 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 scheduled for 2022. The company attributed the delay to supply chain problems and a limited supply of battery cells, as well as management trying to focus on getting new factories online. The company's plans for its first pickup, which is expected to go to customers as early as this year, are also affected by parts issues.
Here's what Musk told analysts last month:
“As we make cars at full speed, the global chip shortage remains quite severe. For the rest of this year, our growth rate will be determined by the slowest part of our supply chain.”
Regulatory investigation
In addition to risks to the market's earnings consensus for this fiscal year, Tesla faces a regulatory investigation that could lead to a massive recall.
The US last week opened a formal investigation into Tesla's Autopilot system after nearly a dozen collisions with first-aid vehicles. Over the past seven years, Tesla has charged customers thousands of dollars for this feature.
The investigation by the National Highway Traffic Safety Administration (NHTSA) covers an estimated 765,000 Tesla Model Y, X, S and 3 vehicles as of the 2014 model year. defective and recalling orders – said it was opening the investigation after 11 crashes that resulted in 17 injuries and one fatality.
Bloomberg reported that Tesla has been criticized for years for labeling the system in a potentially misleading way. Since the end of 2016, it has been bringing this functionality to a higher level as Full Self-Driving Capability. In reality, Autopilot is a driver assistance system that maintains the speed of vehicles and keeps them centered in lanes when engaged, although the driver is expected 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 the probe, two Democratic senators asked the Federal Trade Commission to also investigate Tesla over the company's advertising for its Autopilot and FSD technology.
In a letter last Wednesday, Connecticut Senator Richard Blumenthal and Massachusetts Senator Ed Markey asked FTC Chairman Lina Khan to investigate whether Tesla used "potentially deceptive and unfair practices" in marketing those technologies.
"We fear that Tesla's Autopilot and FSD features are not as mature and reliable as the company presents to the public," they wrote, citing comments from Musk, as well as a 2019 YouTube video titled "Full Self-Driving" and has a link to Tesla's site.
However, highlighting these risks and how they could affect Tesla's current stock price should not hide the fact that many analysts remain optimistic about TSLA. Piper Sandler reiterated his overweight rating for the stock and his price target of $1,200 this month.
In a note, analysts Alexander Potter and Winnie Dong said:
“Bottom line: we still like this stock very much. Tesla continues to be the driving force behind higher [battery electric vehicle] penetration globally.”
Bottom Line
It is difficult to predict the future price for Tesla stock, given the huge amount of speculative interest in this name. But recent developments show that it will be quite difficult for the EV carmaker to exceed expectations in this difficult manufacturing environment.
Investors should act with caution on this name.
