Tesla (TSLA +2.73%) has been in the news lately, but not for the reasons one might think. CEO Elon Musk has been drawing a lot of attention for his interest in Twitter, which has brought Tesla into the spotlight for reasons that are mostly unrelated to the actual business.
For current or prospective shareholders, it's important to separate the signal from the noise and focus on Tesla's business when making investment decisions. While the actions of its CEO certainly are worth considering, there are other factors about Tesla that deserve more of your attention when it comes to buying or selling any shares.
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1. Tesla's stock split isn't as important as it may seem
Tesla investors could be forgiven for thinking that a stock split means share price increases. After Tesla announced its last stock split in 2020, the stock price rose 80%. However, it's important to remember that the timing of that split also coincided with an overall bull market in the middle of its post-pandemic crash recovery. It's no guarantee that this recent stock split news would spark a similar jump in share price.
The bottom line is that stock splits don't add any intrinsic value to the stock for shareholders. Yes, the split results in more shares, but those shares are also worth proportionally less, resulting in the same ending value for the investment.
NASDAQ: TSLA
Key Data Points
2. Tesla's production and delivery numbers are worth keeping an eye on
Tesla recently reported its Q1 2022 vehicle production and delivery metrics. Tesla produced 305,407 and delivered 310,048 vehicles during the quarter, which represented year-over-year increases of 69% and 68%, respectively. On the other hand, vehicle production sequentially (compared to Q4 of 2021) decreased by 14% and deliveries were only up slightly at an increase of 0.5%.
There are two ways to view these results. The growth compared to the year-ago quarter is impressive, but the sequential growth could end up being a sign of a tough 2022. Time will tell, but this is something worth keeping an eye on in the coming quarters.
3. There's trouble in China
Tied directly to the aforementioned production and delivery numbers are Tesla's struggles in China. With a resurgence of COVID-19 in the country, the Chinese government has instituted a strict lockdown policy in order to contain the spread of the virus. This is having a significant impact on Tesla's Shanghai factory, which has been shut down for almost three weeks. Tesla's Shanghai factory produces approximately 2,100 cars a day, so the production delays are rapidly adding up.
While the Shanghai factory only manufacturers a minority of Tesla's vehicles, a prolonged shutdown could have a material impact on the business, especially considering the ever-increasing competition in the electric vehicle (EV) space. Customers looking for an EV may turn to a competitor if Tesla's production issues result in long delays in vehicle delivery.
4. Elon is all over the news, but not because of Tesla
As referenced above, Tesla has been in the news a lot lately for reasons unrelated to its business. Over the course of a few weeks, CEO Elon Musk became Twitter's largest shareholder, was reported to be joining Twitter's board of directors, but then reported not to be, and attempted to buy Twitter for $43 billion in cash. By any account, Musk's attention has been spread thin recently.
Considering there are legitimate concerns with Tesla's production capacity, it would be appropriate to wonder if the company's CEO is focusing enough on the business he runs. Management is an important factor in any investment decision and it's worth taking Musk's leadership into consideration when evaluating Tesla as an investment.
5. Tesla's valuation depends on continued strong performance
All these factors boil down to how Tesla is valued as a company. Tesla currently has a price-to-sales (P/S) multiple of 21. While this is 30% lower than its recent high, the company is still valued richly compared to other automakers. Three companies with significant investments in the EV space -- Ford Motor Company, General Motors, and Volkswagen -- all trade at a P/S under one.
Tesla is still the leader in the EV space, so one could argue its valuation is justified. That said, if the company's lead is diminished either by its own struggles or the success of its competitors, the story will change quickly.
