Tesla (NASDAQ: TSLA) shares reached their all-time high of $1,229 in early November 2021. However, since then the electric vehicle (EV) giant’s shares have tumbled almost 32%, currently sitting at $838. What’s more, in 2022 alone the shares are down 30%.
In an uncertain economic environment, do Tesla shares have what it takes to climb back above $1,000 during 2022? And as such, should I be considering adding the shares to my portfolio? Let’s take a closer look.
Reason for November price jump
The main reason why Tesla shares skyrocketed in November was due to a partnership announcement with Hertz. The car rental giant said it would be buying 100,000 Tesla vehicles to add to its fleet throughout 2022, which is expected to equate to a healthy $4.2bn for Tesla. This injection of cash throughout the year should help Tesla deliver more solid results.
In addition to this, in September 2021, the firm’s Model 3 sedan topped total new car sales in Europe, becoming the first fully electric vehicle in history to do so.
Growth in 2022
On 26 January 2022, Tesla released its 2021 Q4 results. Revenues came in at $15.9bn, up 71% year on year. In addition to this, profits rose an astounding 118% compared to Q4 2020, with margins rising over 6% in the process. Tesla is also in a great spot financially, with $17.6bn cash and negligible debts.
Although these results were extremely encouraging, Tesla shares dropped over 10% in the days after their release. This was largely due to wider issues concerning supply problems after Tesla affirmed that its “own factories have been running below capacity for several quarters as supply chain became the main limiting factor, which is likely to continue through 2022”. These supply issues are likely to be a threat to Tesla shares climbing back to $1,000.
Why I am not a fan of Tesla shares
It’s no secret that the Tesla share price is high and heavily overvalued, especially when considering its fundamentals. Tesla shares currently trade on a price-to-earnings (P/E) ratio of 171. For context, good value stocks usually trade on P/E ratios of under 10.
With such a high valuation comes volatility. As my fellow Fool, Cliff D’Arcy mentioned, between March 13 and March 20 back in 2020, the stock moved by over 12% every day, primarily due to high volume options trading. I’d be lying if I said this volatility didn’t worry me.
In addition to this, rising global interest rates are placing big pressure on growth stocks. When rates rise, people turn away from riskier investments, and hence valuations drop. For context, the S&P 500 Growth, a high-growth index, has dropped almost 15% in 2022. With Tesla’s high valuation and volatile price movements, I think interest rates pose a real threat to the shares.
Overall, I am sceptical about whether Tesla shares will be able to climb back above $1,000, especially considering supply chain shortages and the threat of rising interest rates. Although the firm continues to see great results, I think those broader factors outweigh any positives. Therefore, I won’t be adding any Tesla shares to my portfolio today.
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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
