It looks to me as if the stock’s in a holding pattern. After surging last year, the Tesla share price needed to catch its breath to let the firm’s fundamentals catch up to its market value.
It looks as if this is happening. For the second quarter of the year, Tesla reported revenues of nearly $12bn, up a staggering 100% year-on-year. Its net income rose to $1.1bn, compared to just $100m in the prior-year period.
Tesla share price outlook
The electric vehicle (EV) manufacturer’s revenues have surged as output has jumped. The company produced 206,412 cars in the second quarter of 2021. By comparison, last year, the group delivered 500k vehicles.
This year, the company targets total sales of at least 750k, although it’s already sold 386k and plans to sell more than 400k in the second half. These numbers imply the group could sell between 750k and 800k vehicles this year.
Unfortunately, due to the global semiconductor shortage, there’s a risk the company may miss this target. We should have more information on this when the firm publishes its third-quarter results later in the year.
Considering the above, I think the Tesla share price can keep rising if the company’s output continues to increase. That’s assuming, of course, this output translates into profits.
The automotive industry is notorious for having low-profit margins and volatile earnings. Tesla itself has only just become profitable. While this has not held back the stock price in the past, investors could get cold feet if the company suddenly starts suffering from delays to production and increased costs.
Another factor to consider is competition. For the past few years, Tesla’s EVs have had virtually no competition. But now, rivals are accelerating their output. The number of EVs on the market is rising rapidly, and costs are falling. This may lead to a price war, and it’s unclear at this stage if the sector manufacturer will be able to compete effectively with its larger peers.
Still, the Tesla share price has defied expectations in the past. I think there’s a good chance it could continue to do so. I think the business has revolutionised the automotive industry and accelerated the uptake of EVs worldwide. As such, as long as the enterprise continues to meet customer demand and produce something customers want to buy at the cutting edge of technology, I believe it’ll continue to succeed.
Therefore, while it’s impossible to say whether or not the Tesla share price will keep rising, as it’s impossible to predict the future, I think there’s a high chance the group’s profits and sales will continue to grow as we advance. This could translate into a positive share price performance.
That’s why I’d buy the stock for my portfolio.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.