Tesla Inc.’s ability to navigate a global supply crunch and exceed Wall Street expectations has given its stock a rare distinction among big, fast-growing companies: It’s poised to erase most of its losses for the year.
The electric-car maker’s earnings Wednesday showed that Elon Musk’s company has not only managed the shortages, but also succeeded in protecting its margins by raising prices on its cars. The stock rose 7.7% to $1052 at 6:45 a.m. in premarket trading, leaving it down about 0.5% for the year.
Tesla is often compared to the so-called FAANG stocks, which have long enjoyed similar reputations as fast-growing businesses with high valuations and devoted fan bases among investors. But while many of those companies struggle to attract new customers in relatively saturated markets, Tesla is still in the process of ramping up production and has a large untapped addressable market.
“Tesla has one key advantage over most tech names—it is still in the early innings of its growth story,” said Nicholas Colas, co-founder of DataTrek Research. “In that respect it is different from Netflix or Facebook or even Apple, Microsoft and Amazon; all those companies have great market share but the growth stories are less powerful than Tesla’s.”
The economic and political backdrop also hasn’t dented investor enthusiasm for Tesla shares. Rising inflation, tighter monetary policy from the U.S. central bank and the war in Ukraine have weighed on stocks with high valuations this year, as investors seek refuge in safer investments.
Yet Tesla, at 83 times estimated earnings for the next year, is more expensive than the FAANG stocks, and also of a wider group of similar companies in the NYSE FANG+ Index. And still it’s managed to outperform those peers.
Tesla also has left smaller EV companies in the rear view mirror. While Tesla shares rose almost 8% over the past month, Rivian Automotive Inc. and Lucid Group Inc. have fallen about 20%, bringing their year-to-date losses to a whopping 65% and 45%, respectively.
The resilience of Tesla shares reflected the company’s position as the only mature EV company as other startups struggle to cope with the supply-chain troubles and soaring costs of raw materials. It has also fared better than bigger-volume rivals, such as General Motors Co. and Ford Motor Co., whose shares are down 29% and 23% respectively.
Tesla’s high price-earnings ratio doesn’t deter its most ardent believers. Just last week, Cathie Wood’s Ark Investment Management updated its price target for the stock and now expects it to more than quadruple to $4,600 by 2026.
“Some of their premium valuation stems from the fact that they are still relatively early in their life cycle, and that electric car as an industry is still an early part of its life cycle,” said Steve Sosnick, chief strategist at Interactive Brokers LLC.
With valuations at near-record highs at the start of the year, investors punished high-flying FAANG stocks more severely than it rewarded them after the firms reported results last quarter. Alphabet Inc., Amazon.com Inc., Apple Inc. and Meta Platforms Inc. are all expected to release quarterly earnings next week.
