Tesla (TSLA 1.16%) is the largest and most widely followed electric vehicle (EV) company, so it should not be a surprise that its stock moved on its latest quarterly vehicle delivery report. What is surprising is which direction it went.
Shares dropped after the EV trailblazer reported third-quarter production and delivery results. Rather than bailing due to the lower-than-expected deliveries, investors should focus more on what the reaction means for the stock and what the underlying business is doing. That might change some sellers' minds.
Look at production growth
Tesla reported a quarterly record with almost 344,000 vehicles delivered. Investors expected more and the report triggered a sell-off in the stock. That reaction was despite the fact that those deliveries were 42% higher than the prior year period, and a 35% jump over the prior quarter. But none of those numbers are really what's important for long-term investors.
What really mattered in that report was the nearly 366,000 vehicles Tesla actually produced in the third quarter. That alone represents a pace of 1.45 million vehicles produced annually. And that comes despite several headwinds the company is facing right now. Many EV makers are having trouble getting parts, but Tesla is navigating supply chain disruptions well.
The company has had to deal with lockdowns disrupting production at its Shanghai facility, and it is still working through the challenges associated with ramping up its two newest facilities in Austin, Texas and near Berlin, Germany.
Investors shouldn't be worried about the discrepancy between produced vehicles and deliveries in the third quarter, however. All of its production has buyers, but the company said it is working to find enough "vehicle transportation capacity and at a reasonable cost." Those logistics issues for shipping finished products are magnified thanks to the sharp increase in production growth. That's a good problem to have and should really encourage investors rather than scare them.
Beyond just cars
Tesla isn't just about electric cars, either. The company will share its full third-quarter results on Oct. 19, 2022, and there will likely be other news items of interest from that. CEO Elon Musk has previously said he expects the Tesla Semi battery-electric truck to begin shipping this year and the Cybertruck next year. Those could both become further growth drivers for the company.
Tesla also should benefit from the Inflation Reduction Act (IRA) in several ways. The new law resumes tax credits for EV buyers for some manufacturers -- including Tesla -- that had surpassed prior production limits. Those credits previously ended after a manufacturer sold more than 200,000 vehicles. The IRA now has limits on vehicle list prices and requirements for more of the supply chain to be based in the U.S. Tesla's lower-priced vehicles will be eligible under the price limit, and it already does some of its battery production domestically. The company is also now investigating whether to build a lithium refining facility in the U.S.
Its battery production gigafactories support internal production, but Tesla has also been increasing production of battery storage and solar systems that it sells to outside customers. In its second-quarter report, the company said it continues to ramp up Megapack storage production as customer interest "remains strong and well above our production rate."
Why would some sell the stock?
However, some investors have a logical reason to sell the stock. Analysts expect earnings in the back half of 2022 to be 50% higher than the first half. If that comes to fruition, Tesla stock is already trading at a price-to-earnings (P/E) ratio of about 56 based on 2022 earnings.
That's a high valuation in any market, and the recent market sell-off has many investors looking more for safety than risky assets. But Tesla believes it still has several more years where it will boost EV production at a 50% annual rate. That would bring the valuation down relatively quickly and could give long-term investors winning returns. Add in the other sides to its business, and it might be wise to take advantage of the recent drop in Tesla stock.