Tesla shares are making a comeback as investors expect the Elon Musk-led electric carmaker to overcome the crippling semiconductor shortage better than its hard-hit rivals.
The stock rose as much as 0.9% to $ 850.99 in US pre-market trading on Monday, up 50% from a March 8 low of $ 563. That comes after eight weeks of gains, their longest winning streak since before the Covid-19 pandemic rocked the markets. The rally makes it the sixth largest publicly traded company in the US, ahead of Berkshire Hathaway Inc.
“We believe an evolving green tidal wave will propel Tesla shares higher despite short-term chip shortages with Q3 earnings this week, another positive catalyst,” Wedbush analyst Daniel Ives wrote in a Sunday note.
Tesla shares have risen steadily in recent months, thanks to strong quarterly results that showed the company fared much better than traditional automakers in handling semiconductor shortages. Third-quarter deliveries beat all estimates.
Telsa’s handling of the chip shortage even received praise from one of its biggest competitors.
“An example of the speed of Tesla: they handle the chip shortage very well, the reason: they are developing their own software,” Herbert Diess, president of Volkswagen AG said in a LinkedIn post. “In just 2-3 weeks they had new software that allows them to use different chips. Impressive.”
Tesla is scheduled to report its third-quarter earnings results on October 20. It’s one of the few global auto stocks to enjoy upward revisions to analyst earnings estimates in the past month, while most other automakers faced cuts due to chip shortages.
Still, some say Tesla’s pioneering qualities in the electric vehicle race don’t justify its assessment. Not only is the company the world’s largest automaker, its market capitalization of more than $ 845 billion is far greater than all the major auto companies combined. Critics say the company’s market capitalization also doesn’t reflect the wave of competing cars from legacy auto companies that are expected to hit the market starting next year.
In fact, the competition is heating up. After being on the sidelines for years, several major legacy auto companies have announced aggressive plans to build electric vehicles and develop the required ecosystem that includes batteries and charging station networks.
Optimistic investors and analysts, on the other hand, say that Tesla shouldn’t compare itself to its automotive peers at all. It looks more like a tech company and is correctly priced accordingly.
Tesla shares are currently trading at 120 times their 12-month future earnings, making them the most expensive stocks in the NYSE + FANG index, whose other nine members include Nvidia Corp., Alphabet Inc., Apple Inc., Twitter Inc., Facebook Inc., Amazon.com Inc., Netflix Inc., Alibaba Group Holding Ltd. and Baidu Inc.
Despite the huge push from legacy automakers around the world to develop electric vehicles and the emergence of several new players, Tesla has still managed to maintain its dominance in the space, producing some of the best-selling electric vehicles globally: Model 3 and Model Y.
Taking a step back, with chip shortages such as a huge glut in automotive space and global logistics issues, these delivery numbers combined with this week’s likely pace of earnings speak to a trajectory in vehicle demand. that looks pretty solid for Tesla going into 4Q and 2022, ”Ives wrote.
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