The bear market has mauled technology stocks over the past year, as investors sought safe havens to ride out the macroeconomic headwinds. Wall Street has struggled with near 40-year-high inflation, relentless interest rate hikes, and the potential for an even steeper downturn next year. This wave of uncertainty has washed over the Nasdaq Composite (^IXIC -0.64%), pushing the tech-centric index down more than 26% since its high-water mark in late 2021. Many individual stocks have fallen even further.
Yet, as troubling as the past year has been, there's actually some good news. Even as the paper losses persist, this uncertain environment provides marvelous opportunities for investors. One such example is Tesla (TSLA 4.96%). The electric vehicle (EV) maker has seen its shares crumble, down 52% since early this year, despite an unrivaled history of persistent growth and an industry-leading position.
Can Tesla drive through the economic storm that has buffeted its stock so far this year? Let's take a step back and look at the big picture.
Image source: Tesla.
Shifting into low gear
The bear market aside, one of the biggest contributors to Tesla's spectacular fall from grace was the company's recent production and delivery numbers. While growth was robust -- particularly given the economic climate -- investors wanted more.
Tesla delivered 343,800 vehicles in the third quarter, handily beating the 255,000 units it shipped in the second quarter. Unfortunately, those results fell far short of analysts' expectations of 364,660. Additionally, the company reported production of 365,923, soaring past the 258,580 produced in the second quarter, which was hampered by pandemic-related restrictions in China.
Management explained that delivery volumes were historically lumpy and "skewed toward the end of each quarter." However, in the face of increasing production, arranging sufficient capacity to deliver all those vehicles became more and more challenging. As a result, Tesla decreased its guidance, reducing its forecast to 50% year-over-year growth, down from its prior goal of 60%.
Furthermore, Tesla has also been making headlines lately -- and not in a good way -- as the company was forced to recall more than 80,000 cars in China in late November due to seatbelt and software deficiencies. Another recent misstep involved a recall of 435,000 cars in China and over 321,000 cars in the U.S. to address a problem with the rear light. While the headlines about those issues are enticing, they ignore the fact that the fix will come from a software update, which will be delivered remotely to address the issue.
This cloud has a silver lining
Investors appear to be underestimating Tesla's potential, having forgotten the company's tendency to set ambitious targets and exceed them -- or at least come close. So far in 2022, Tesla has produced nearly 930,000 EVs, and delivered more than 908,000 -- with nearly all of the difference resulting from the vehicles in transit at the end of Q3. The company is currently on track to produce at least 1.3 million cars this year, an increase of roughly 39%.
The results could, in reality, be much higher. Tesla isn't hamstrung by the closure of its Shanghai production facility that hampered its third-quarter growth. In fact, numerous media reports suggest that Tesla planned to ramp up global manufacturing in the fourth quarter -- particularly at its gigafactories Texas and Germany -- aiming to produce a total of more than 500,000 vehicles.
If the company is able to achieve this ambitious growth target -- or even come close -- it could easily blow past its pared-back 50% production increase, perhaps closing in on its original goal for 60% growth. That wouldn't be too outlandish considering Tesla's production and delivery numbers have historically peaked in the fourth quarter in each and every year going back to 2018.
Image source: Tesla.
Another potential catalyst is the debut of the Tesla Semi truck, highlighted by the first deliveries, which took place at an event on Dec. 1. The electric truck can reportedly complete a 500-mile trip on a single charge, while achieving efficiency of less than 2 kWh per mile, which could save users $70,000 in fuel costs annually, depending on energy prices. During the company's third-quarter earnings call, CEO Elon Musk said Tesla plans to produce as many as 50,000 trucks per year by 2024, which would make it one of the leading Class 8 truck manufacturers in the U.S., according to Electrek. It's too soon to know how quickly this will become a profit center for Tesla, but if history is any indicator, it shouldn't take terribly long.
The time is now
The overall trajectory of Tesla's business suggests that the stock could be on the verge of a significant move higher. That's not to say that it couldn't fall further from here, as history shows it certainly could. That said, calling a bottom is virtually impossible and the best investors can hope for is to take advantage of these relative bargains before the economy turns and quality stocks start to soar.
To be clear, Tesla is not now -- nor has it ever been -- cheap. It is, however, near its lowest valuation ever, with the stock selling for 47 times next year's earnings and 5 times next year's sales. That said, given the company's growth history and its ability to achieve even the most ambitious targets, Tesla stock could be due for a major rebound in the near future.
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