Compared to the broader market, Tesla (NASDAQ:) has underperformed for most of this year. Investors were wary of the world's largest electric vehicle manufacturer amid growing competitive threats from traditional automakers, signs of a potential slowdown in sales in China and an ongoing shortage of semiconductors. But in the past month, there has been evidence that the bearish spell in Tesla stocks is running its course and investors are taking advantage of the current weakness. Shares of the Palo Alto, California-based EV maker are up more than 13% in the one-month period, nearly wiping out the stock's losses thus far. TSLA closed Friday at $678.90, down about 4% for the year.
For Tesla bulls, arguably the best thing about the current rally is that the stock's momentum is supported by some positive catalysts. The company told investors on Friday that it shipped 201,250 cars worldwide in the second quarter, a record number despite chip shortages and concerns about the slowdown in the Chinese market.
The bulk of sales during the period were for the Model 3 sedan and the Model Y crossover, which are manufactured in Shanghai and Fremont, California. Those countries are Tesla's largest markets. This strong delivery performance is an indication that CEO Elon Musk is likely to report a new one when the company releases its second-quarter financial results later this month.
In a note to clients, Wedbush Securities analyst Daniel Ives said:
"This quarter was an impressive performance from Musk & Co. and now with a strong performance in the second half, it should be possible to hit ~900,000 vehicles for the year, which was a key target."
As Tesla continues to produce additional vehicles each quarter, the overall improved sentiment for growth stocks is also helping.
Mega-cap tech names like Facebook (NASDAQ:), Alphabet (NASDAQ:) and Microsoft (NASDAQ:) are back near record highs as inflation fears ease and prospects for technology stocks improve as the reopening of the US economy is gaining momentum.
Analysts split on Tesla
Despite these positive signals, Wall Street analysts remain divided on the stock's performance this year, after more than a 700% rally in 2020. Of the 24 analysts tracking the stock, 10 recommend a buy, 7 favor a sell and an equal number advocate a hold. The average price target represents a 10.39% drop from the last price of $678.90, according to TipRanks.
UBS analysts explained in a recent note that growing competition in the EV market is a key driver of why some of the shine has faded from Tesla stock this year.
“Our main short-term concern is that Tesla's demand momentum in China is slowing, and our on-the-spot audits suggest that domestic brands are gaining further ground versus Tesla, which could lead to additional pricing action from Tesla and consequently lower gross margins," UBS's Patrick Hummel said in a recent note. Hummel, while maintaining a neutral assessment of the stock and lowering his price target for Tesla from $730 a share to $660 a share, said pressure from other EV makers will continue to weigh on the company. His note adds:
"Valuation wise, competitors' EV launches with long range, charging performance and attractive value for money may continue to weigh on the value the market is willing to attribute to Tesla's long-term growth."
Bottom Line
The short-term outlook for Tesla has turned more favorable after the company produced more cars in the second quarter than analysts had expected. That shows that it has managed to solve supply chain problems that hurt other traditional automakers. However, this impressive performance may not be enough to push the stock much higher than its current level amid concerns about growing competition.
