Stock Analysis & Ideas

After a Bumpy Start, Could 2H22 be Smoother for Tesla?

Story Highlights

Production and cost headwinds took a toll on EV makers. The operating environment could improve in 2H, says the analyst.

Production headwinds and cost pressure stemming from chip shortages, supply volatility, and COVID-led lockdowns in China took a toll on EV (Electric Vehicle) manufacturers. Given the challenges, shares of top EV makers dropped significantly. 

For instance, shares of the industry leader Tesla (NASDAQ: TSLA) fell more than 38% this year. Moreover, it has dropped about 48% from its 52-week high. 

Now What?

Amid heightened cost pressure, Tesla raised the prices of its vehicles multiple times this year. Moreover, its CEO, Elon Musk, recently warned that supply headwinds and production challenges in China would impact its Q2 performance, Bloomberg reported. 

Despite the challenges, Mizuho Securities analyst Vijay Rakesh is upbeat on EV stocks as he expects supply and production headwinds to ease in the 2H of this year. 

Rakesh stated, “Shanghai re-opening and government stimulus we believe sets up for a strong 2H22 recovery” for EV makers, including Tesla. Further, the production ramp-up in Berlin is a positive for Tesla. 

Rakesh sees the partial lockdown in the Shanghai factory as a near-term headwind. He believes TSLA’s Q2 revenues could decline sequentially amid ongoing production challenges. However, Rakesh expects a strong rebound in Q3 and Q4, led by an improved supply chain environment and ramp-up in Berlin. 

Echoing similar sentiments, RBC Capital analyst Joseph Spak also turned bullish on TSLA stock. However, Spak reduced his price target to $1,100 (69.2% upside potential) from $1,175. 

Including Rakesh and Spak, Tesla stock has received 16 Buy recommendations. Meanwhile, it has got eight Hold and Six Sell recommendations. 

Overall, it sports a Moderate Buy consensus rating on TipRanks. Further, the average Tesla price target of $917.10 implies 41.1% upside potential. 

Bottom Line 

As of yet, Tesla has managed the supply and production headwinds reasonably well. Moreover, its higher average selling prices have cushioned its margins. However, cost and supply headwinds remain a drag in the short term. 

In the long term, the strong demand trajectory, government policy support, and cost optimization will likely support the EV market and Tesla stock.


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