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What Lies Ahead for Tesla Stock after a Volatile 2021?

tesla car

2021 is finally drawing to a close. It has been a volatile year for EV (electric vehicle) stocks including Tesla. However, while some EV stocks failed to hit their previous highs, Tesla made new highs in the fourth quarter of 2021.

Despite the recent fall, it is up over 50% for the year, outperforming EV peers by a wide margin. The stock had risen 740% in 2020 as well and now has a market cap of above $1 trillion. No other automaker in history has managed to achieve that feat.

Tesla in 2021: A brief recap

The year started off well for Tesla and other EV stocks. The stock rose to new record highs amid the momentum in green energy stocks following Joe Biden’s election. However, soon rising bond yields took a toll on growth stocks, which includes the green energy space. Amid rising bond yields, the valuations of some of the growth stocks started to appear frothy and there was broad-based selling.

Meanwhile, the sentiments turned for the better following the COP26 and the passage of the infrastructure bill in the US, which among others has billions of dollars earmarked for EV charging stations.

Tesla continued its record run

While the global automotive industry was grappling with chip shortage, it was business as usual for Tesla generally. The company delivered a record number of cars in every quarter and its earnings for all quarters were also better than expected. Since it posted a surprise profit in the third quarter of 2019, Tesla has been profitable in every quarter.

This year, Tesla also began the deliveries of its Model S Plaid version even as the company backed out of the Plaid S+ model at the last moment. It also pushed back the delivery timeline for its Cybertruck.

China controversies

It was a mixed year for Tesla in China. There have been months where its sales have been weak which has raised concerns over slowing growth in the country. Also, the company’s vehicles were barred from Chinese military facilities over spying concerns. The company also faced flak for its alleged poor customer service in China. An irate customer had claimed on top of a Tesla car at Shanghai Auto Show earlier in the year. That said, the company’s China Gigafactory has ramped up quite fast which would put even the established automakers to shame.

The bitcoin saga

Tesla and its CEO Elon Musk also dabbled with bitcoins and other cryptocurrencies in 2021. The company announced a $1.5 billion investment in bitcoins in the first quarter and also started to accept it as payment. However, soon Musk had a breakup with the most popular cryptocurrency over its green credentials and the company stopped accepting bitcoins. Musk’s tweets and antics had a market-moving impact and the self-proclaimed “dogefather” influenced the price action of several cryptocurrencies.

Tesla controversies

When it comes to Tesla, it is hard not to think about controversies. In 2021, the company announced a massive recall of vehicles in the US as well as China. There was also a fire incident with vehicles including the Model S Plaid. Then the company got into controversies for its FSD (sull-self driving). The nomenclature sounds misleading as the software is not yet fully autonomous and even Tesla advises riders to keep their hands on the steering all the time. The NHTSA opened a formal investigation into the Autopilot after reports of crashes. Now, the regulator is investigating whether drivers can play a videogame on the touchscreen in Tesla cars.

At its AI day, Tesla also announced a humanoid and a custom chip. This was yet another bold announcement from Tesla even as it is yet to deliver on several previous announcements like the robotaxis and the turnaround in the solar business.

Elon Musk controversies

Musk has never been shy of controversies and 2021 wasn’t any different. He created turmoil in crypto markets with his frequent tweets. Also, this year, Musk sold several Tesla shares after a Twitter poll where his followers voted in favor of him selling shares. Meanwhile, while Musk touted the stock sale as a tax charity targeting those who say he does not pay taxes, in reality, the stock sale was necessitated because of the exercise of the stock options. Also, Musk sold shares before the expected increase in capital gains taxes.

Rivian

While Musk has traditionally mocked gasoline car companies, this year, he reserves his barbs for startup electric vehicle companies that are commanding high valuations. He was especially critical of Rivian, the startup EV company whose market cap rose past $100 billion. The company has delivered only a few cars so now. However, many see the Amazon-backed company as a key challenger to Tesla.

Musk made some very indecent comments against Bernie Sanders also this year. The socialist leader has long been campaigning for higher taxes on billionaires and Musk hasn’t shared a good rapport with him.

Tesla deliveries

Meanwhile, Tesla is expected to produce 270,000 cars in the fourth quarter which would mean an annual delivery run rate in excess for the company. It would be a big milestone for the company as it delivered its millionth car last year only.

In 2022, markets would watch out for the trajectory in Tesla’s delivery numbers. This year, it said that it expects deliveries to rise at a CAGR of 50% over the near foreseeable future. Also, the delivery timeline for the Cybertruck and any new update on the robotaxis would be awaited by the markets.

Tesla 2022 outlook

Credit Suisse, which has a neutral rating on Tesla said “We believe a central theme for Tesla in 2022 will be its supply/demand mismatch – simply, whatever Tesla can produce, it will sell. Sell-side consensus is currently 1.3mn units, however in recent weeks buyside feedback has cited potential for 1.4-1.6mn units, a clear increase vs. the ~920k we expect from Tesla in 2021.”

It added, “Shanghai could be a source of upside, as it has been largely responsible for Tesla’s positive production trends over the past two years amid a very efficient production ramp.”

Overall, expect another volatile year from Tesla as the company tries to justify its $1 trillion market cap. This year, the company would also face increased competition from newly listed Rivian and Lucid Motors. NIO is also coming up with two new sedans this year. The Chinese EV markets could see even more competition as Huawei is also coming up with its electric car towards the end of February.

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Mohit Oberoi is a freelance finance writer based in India. he has completed his MBA with finance as majors and also holds a CFA charter. He has over 13 years of experience in financial markets. He has been writing extensively on global markets for the last six years and has written over 6,500 articles. He mainly covers metals, electric vehicles, asset managers, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.