Tesla (TSLA) has been one of if not the only name that came to mind when one thinks about electric vehicles (EV’s). The real question is, will that be the case in the next couple of years? Legacy automakers are set to put out several new EV’s and loyalty is likely to have an effect. Yet, Tesla is set to deliver over 1.4 million cars in 2022 with major capacity increases coming later on this year and into 2023 thanks to Giga-Berlin and Giga-Texas coming online. It feels like we are at a pivot point, and the stock seems to be trading that way as well. 2022 is going to be a big year for EV’s across the globe.
One of my pet peeves with Tesla bulls on Twitter/Discord platforms is how easily they dismiss the competition. They seem to think that the competition is just going to roll over and let them dominate the market. Before I dig into this and take the competition’s side for sake of argument, I will say that the missed deadline flak that Tesla gets has happened to the legacy automakers as well. For example, back in 2017 General Motors (GM) came out and said they will have “at least 20 new all-electric vehicles that will launch by 2023“. Near the end of 2020, that changed to “GM is on its way to an all-electric future, with a commitment to 30 new global electric vehicles by 2025“. My point here is to take any commitment to a “new model” with a grain of salt from any of these companies, Tesla included.
Tesla bulls love to talk about how late to the game the legacy companies are. I don’t think the legacy automakers didn’t believe in EV’s, I think they were waiting until it made financial sense, in terms of EV’s being profitable, before doing it. It’s easier said than done and they were making good money selling ICE cars, why change? Now as the EV market share is exploding, they are getting in the game quickly. Why does this affect Tesla? Brand loyalty is a real thing, and I think Tesla Perma bulls underestimate how hard it is to pry someone from a brand they are loyal to. Looking below we can see the J.D Power 2020 U.S Automotive Brand Loyalty Study results. This was a two-year (and continuing) study that calculates whether an owner purchased the same brand after trading in an existing vehicle on a new vehicle. Loyalty percentage is based on the percentage of vehicle owners who choose the same brand when trading in or purchasing their next vehicle.
Subaru ranks highest among mass-market brands and highest overall in the automotive industry for a second consecutive year with a loyalty rate of 60.5%. Industry giant Toyota ranks second (60.3%), followed by Honda(58.7%), Ram(57.3%), and Ford(54.3%). If Tesla wants to sell 20 million cars a year, this is who they have to compete with. Easier said than done. There’s no question they will pull some customers away but how many?
What Tesla does have going for it, is often when you think about EV, you think Tesla. But there are going to be plenty of options out there over the next 5 years, and it’s going to be the consumers’ favorite brands putting them out there. Now as I said, take these timelines with a grain of salt (especially if we continue to see supply chain disruptions), but in 2022/2023 we are expecting to see the launch of:
There are 38 cars on this list. If you want to see more detail on all of them, check it out here. I didn’t even include some of the fringe brands or new startups. My point here is that the competition is alive and well. If a consumer is currently driving an ICE vehicle, and they see that the brand they are loyal to is going to be coming out with an EV in the next 2 to 3 years, why would they drop it and buy a Tesla now? The stats say that’s not very likely. The other argument is that the performance of a Tesla is so much better, which does hold water. True car junkies might hop onto the Tesla train simply based on performance, which is fair. But what drives consumer choice? Well, studies show the following factors come into play:
Upon doing the research for this piece, I was shocked at how low price was on the list. Now, this list is old and I searched for a newer one, but I could not find it. I do think Fuel Economy or “EV/Hybrid” makes the list, but where is it at this point? EV sales are growing and growing quickly. There were 6.6 million sold in 2021. That’s more than triple the market share from two years prior. It may only total 9% of the car market at this point, but at the rate of growth we are seeing, that’s only going to increase. Looking below, we can see just how steep the growth curve is getting. If this were a stock, would you invest? If you’re undecided, check out the SuperBowl ads from this past Sunday and just count the commercials that show EV’s in them. If you were watching, you know exactly what I’m talking about. Check out which brands are spending as much as $6.5 million for a 30-second hit while you’re at it. They know what they are doing. Could this be free advertising for Tesla given that many of the cars shown arent available quite yet? Possibly. But I do think the loyal owners will be patient.
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Knowing full well that the competition is going to be pandering to their loyal customers, Tesla finds itself in a tricky situation. There is something to be said for having sold 936,172 cars in 2021, but they aren’t the only ones putting up big EV numbers. The VW group (Volkswagen, ŠKODA, SEAT, CUPRA, Audi, Lamborghini, Bentley, Porsche, and Ducati) put out 763,000 with 549,000 coming out of Europe. But! Guess which EV was the best-selling car in Europe? The Tesla Model 3 noted 142,905 new registrations, which is the 17th best result overall, best in the midsize class, and of course, the best among plug-ins. The Model 3 won by a landslide. The second best-selling car was the Renault ZOE in 2021, with 72,562 registrations.
The above picture shows where the change is happening, and where it’s delayed. For Tesla, it is extremely important that they maintain dominance in Europe, and grow market share in China. They have the US market well under control at the current time, and I think that will continue with ease for the next few years as the legacy automakers bring some of the cars I listed earlier to market. So what do they do in 2022? Well, if we take the company goal of increasing deliveries by 50% annually, the math takes us to ~1.4 million deliveries in 2022. I think this is a huge year for Tesla on the back of Giga-Shanghai and Giga-Berlin growth, and I think they will blow 1.4 million deliveries out of the water.
I’ll start with Giga-Shanghai. It is expected that within a few years, there is the capacity to produce over 1 million cars per year. Now, that could be a bit pie in the sky, and there would need to be some serious expansion, but we are already seeing expansion work underway. According to the annual report for 2021, the current capacity is 450,000 vehicles per year. How much of an increase the current expansion will amount to hasn’t been announced, but what we do know is that they are hiring. On the first day back after the Chinese New Year, there were more than 1,500 positions advertised. Tesla floated out numbers that they could be looking to increase their workforce from 4,000 to 19,000 by April of this year.
As for Giga-Berlin, it really is the wild card in 2022. They are still waiting for approval to produce cars for delivery. As of now, we are hoping to see this come through in mid-March. The approval was originally expected to come through last summer. It has been delayed several times, most recently for the still ongoing safety precaution examinations that are being performed. The long-term goal here is over 500,000 cars annually. Tesla has come out and said that they hope to produce ~30,000 cars there by the midway point of 2022. So much of that is dependent on when the approval does come through.
Essentially all of what Tesla has done so far has come out of the Fremont Factory and Giga-Shanghai, which is impressive. So why is this a pivot point? With Giga-Berlin, and Giga-Texas potentially both coming online this year, expectations are high. If we continue to see delay after delay in getting these factories up and running, investors may start to doubt the growth potential. As I said, I do think that the target of 1.4 million cars delivered gets hit this year, but if we see the growth rate slow and see the competition ramp up, especially in North America, things could get very interesting in 2023 and beyond.
As much as the company is at a pivot point, so is the share price. Fitting? As I mentioned, the goal to sell 20 million cars per year is what investors are looking for. The second we see that growth slow down, the share price will likely fall with it. As I said, I do expect them to grow deliveries greater than expectations, which should be bullish. But at the end of the day, price action is what matters. Let’s dive into that.
In my previous Tesla article, I mentioned that the stock could find the 200-day moving average. I also mentioned that my stop was in at $844, which was taken out on the 27th of January. As the stock continued to dip the following day, I readded a position around $802. I figured $800 would serve as support, and I had a stop-in at $779. Looking below, we can see the current setup is appealing. We can see strong support around $780, and right around $900 which is pretty well right where the stock closed on Thursday. I very quickly moved my stop up to just under the 200-day moving average. That is the orange line on the chart below. We can see that it’s not perfect, but there is clearly support right along the moving average.
The action we are seeing now is actually very positive. I know some may be annoyed it’s not doing anything, but bases are good. It creates a strong support level. Below is a 5-minute chart that shows how we have been range-bound for pretty well all of February so far. A break out of this range will likely set the pace for where we are headed in the short-medium term.
Be mindful of a potential fake breakout. If the stock does move over $948, put a stop in near the top of the range to protect capital. Often in these setups, we see the first move be a fakeout or bull/bear trap before reversing rather quickly. The only way to protect against this is with a stop. Tesla is extremely volatile but has a lot of potential given the explosive potential growth. I still think a general melt-up is coming in the market, and there’s no way that happens without Tesla given their market weighting. My short-term target is still $1200. Once we break through that, it’s game on.
As you can see, the EV market is getting very interesting. Tesla remains the top dog, but the competition is heating up all around them as legacy auto looks to capture their piece of the pie. Tesla is set to hit and surpass their growth targets in 2022, especially if Giga-Berlin and Giga-Texas come online at some point this year. Tesla is set up for long-term success in the marketplace, the longer-term concern is the growth rate. Yes, Tesla is more than just cars, but the bulk of the share price action tends to happen around delivery news. That could change over the next couple of years, but Tesla sits at a pivot point both fundamentally and technically in the market. It’s going to be a huge year in the EV market.
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Disclosure: I/we have a beneficial long position in the shares of TSLA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.