This has been an interesting week for Tesla (NASDAQ:TSLA). The company’s CEO Elon Musk started a very public social media battle with allies of Russian president Vladimir Putin. A surging Covid-19 outbreak in China has forced the company to temporarily halt production at its Shanghai factory.
All of this comes on top of news early in the week that Tesla would be hiking the prices of its vehicles by as much as 10% due to rising costs.
How has the market reacted to these developments? As of Wednesday’s close, TSLA stock has put together a near 9% rally.
So what’s really going on with the stock now, given that it has been punished through 2022? (Even after this week’s rally, its still down 27% in 2022).
The answer there is likely that big picture world events are making investors more optimistic. Fears about inflation and rising interest rates hurt the market in general — and TSLA specifically — to start the year.
Developments this week including slipping oil prices and signs of some progress in talks between Russia and Ukraine are helping to buoy the market. However, that doesn’t mean the latest Tesla developments don’t deserve closer scrutiny.
The Impact of Vehicle Price Hikes on TSLA Stock
Inflation and the war in Ukraine that threatens access to Russia’s nickel production have put pressure on Tesla, resulting in significant price increases. Last week, the company hiked the price of long-range versions of its Model 3 and Model Y by $1,000. That was nothing compared to what came this week. On Tuesday, it was reported that Tesla has hiked prices on every EV it sells by between 5% and 10%.
That is a big price increase for a line of EVs that now starts at just under $47,000.
There was no hit to TSLA stock after the news broke, but as I said, global events are probably overshadowing what’s going on. The concern for shareholders will be that after range anxiety, cost is the big reason why consumers aren’t buying Tesla vehicles en masse. And traditional auto makers have been coming after Tesla with lower-cost EV options.
The reasons why I’m not particularly alarmed about Tesla’s raising prices? First, all EV makers are eventually going to have to price their vehicles to reflect the rising cost of batteries.
Second, the starting price for a Model 3 sounds expensive until you realize that the average price for a new car in the U.S. topped $47,000 in January. That puts it in some perspective.
Third, by taking the bullet and raising prices, Tesla is preserving profit margins despite rapidly rising material costs.
Return of Covid-19 Roadblocks
In other news, Tesla also raised prices in China. The bigger issue in that country could be the news that Tesla had to shut production at its Shanghai factory because of a Covid-19 outbreak. This isn’t a Tesla-specific issue. Many other production facilities in China have been shutting down over the past week as the country fights a Covid-19 resurgence.
The bigger concern here is that Covid isn’t done wreaking havoc. Factory closures and supply chain headaches are not fully behind us yet. Similar situations could continue to play out through 2022.
Bottom Line on TSLA Stock
Earlier this week, I wrote about a growing list of concerns that could have potential downside for TSLA stock. These included supply chain issues, a shortage of chips that resulted in the company skipping any new vehicle launches for 2022, another Cybertruck delay, the war in Ukraine that is impacting the supply of critical materials like nickel, inflation, rising interest rates and delays in Tesla’s 4680 battery production ramp up.
There is also the issue of more EVs (from competitors) hitting the market as demand rises and consumer acceptance grows. Add a Covid-related production halt in China, plus significant price hikes to that list.
Despite a lengthy list of potential issues, Tesla continues to churn out EVs and has no apparent shortage of customers. In the short-term, TSLA stock is very likely to continue experiencing a bumpy ride. However, the long-term picture looks brighter for this Portfolio Grader “B” rated stock, as the EV market continues to expand.
Ultimately, Tesla stock is worth considering if you can handle the potential for some turmoil in the short term. This is especially true given that TSLA shares are now at prices 32% below their November 2021 all-time high close.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier, who has been called “one of the most important money managers of our time,” has broken the silence in this shocking “tell all” video… exposing one of the most shocking events in our country’s history… and the one move every American needs to make today.