Tesla (TSLA) is expected to remain robust against the Federal Reserve’s feared rate increases as high growth rates buffer it against inflation, analysts say.
“The stock has been very resilient in the face of Fed hikes that happened this year and they have the best earnings-growth story of any company in the market,” says Garrett Nelson at CFRA, adding that the electric vehicle (EV) king’s earnings are set to triple by 2024.
Nelson, who has a $450 price target on the stock, adds that Tesla’s rapid growth also provides it with a greater bulwark against inflation than rivals looking to steal its lunch.
“The nice thing about Tesla is that inflation is not impacting its costs and margins as much as others, because of its high growth story and ramp up at its Berlin and Austin factories [which are churning out an ever growing number of cars to meet excess demand],” adds Nelson.
He pointed out that U.S. and European rivals, such as GM (GM), Renault (RNO), VW (VWAPY) and BMW (BMW) will start posting thinner margins due to soaring global prices in coming months.
Nelson notes, however, that Tesla’s recent bull run has made it somewhat expensive and that it could fall further into October as investors remain skittish following Tuesday’s hotter-than-expected inflation report. The reading, which saw core inflation (excluding food and energy prices) rise 0.6% was double economists’ expectations, putting a 75 basis-point hike firmly on the table for next week’s Central Bank meeting - and another similar increase in the cards for November.
Moving into the Christmas Season, however, Nelson forecast shares of Tesla and other tech giants could gain traction with the EV maker finishing 2022 somewhere between $300 and $320.
Interestingly, Tesla’s Beta is also the highest in the industry, at 2.2 versus the 1.3 average, meaning that if the S&P rises 1%, Tesla will climb 2.2%, according to Nelson. Conversely, if there is a market pullback, the shares will also tumble more sharply than rivals.
‘Impressive’ Run
Fundstrat chartist Mark Newton agrees the Austin,Texas-based firm remains a strong buy moving into the New Year.
“Tesla has shown quite a bit of strength and has outperformed most other tech,” he says. “It bottomed at $200 [pre-split] or so in May and has been up almost 50% off those lows which has been fairly impressive.”
On Tuesday’s selloff, for instance, Tesla was down roughly 3.5% as the Dow Jones plunged around 1,000 points near the close of trading. It fell less than other tech darlings such as Apple (AAPL), which tumbled over 5%; or Microsoft (MSFT), which also lost nearly that much. Meta (FB) and chipmaker Nvidia (NVDA) were both off roughly 8%.
Newton expects markets will remain highly volatile [and could even see capitulation ] in the run up to October as the Fed continues to tighten monetary policy to tame the highest inflation in 40 years. However, he sees tech recovering after October as inflation begins to show firmer signs of moderating, putting the economy on a deflationary course early next year.
The technical analyst doesn’t expect Tesla to move lower than $265, the threshold that could fuel further losses.
Future Gains Ahead
David Barse at Xout Capital, a Tesla holder, says the carmaker and other “disruptive” tech stocks look poised for future gains, despite short-term skittishness over the Fed’s hikes to bring 8.3% inflation down to a 2% range.
“Tesla remains leaps and bounds ahead of the EV market so at $291 or so, this is a great buy,” he says, adding that fresh news that it is considering launching a new lower-priced model should further boost its competitiveness.
“Tesla’s mission is to eventually have everyone drive a Tesla so If they can create a vehicle that’s more competitive for a new user base to enhance EV adoption that is a great thing. They should also create a super-luxury model for higher-end consumers,” Barse notes.
He is also bullish on Apple and Microsoft, “which are fantastic companies with strong business plans far ahead of the market” and likely to remain unaffected by short-term Fed jitters.
Meanwhile, the growing, EV-friendly regulatory environment [following the Inflation Reduction Act providing tax credits for electric vehicles] will also lend wind to Tesla’s sails as it’s seen benefiting more than rivals from the new legislation.
“The Inflation Reduction Act gives them a major advantage as both of its Y models and the lower-priced version of the Model 3 can get the $7,500 credit,” Nelson notes, adding that 70% of the 72 EV models sold in the U.S. are not eligible for the incentive, making Tesla “the big winner.”
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Ivan Castano
Ivan Castano is a seasoned financial editor, corporate content specialist and journalist with over two decades’ experience writing for leading publications including Bloomberg, Forbes, Barron’s, MarketWatch, Euromoney and FT groups, among many other leading titles. He enjoys writing about the emerging markets, corporate finance, technology and investing.
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