The cease-fire violations between pro-Russian separatists and Ukraine have increased over the past few days. This rising level of conflict between the two countries has impacted the financial markets worldwide, leaving the investors perplexed.
The shares of electric vehicle giant Tesla (NASDAQ: TSLA) are not immune to the ongoing conditions and have been facing significant volatility in recent trading sessions. As a result, TSLA stock investors have lost 18% in the last month and over 35% since the start of 2022.
The world’s leading electric car manufacturer had already lost value because of the rising interest levels and ongoing supply chain issues. Moreover, the renewed risk of conflict between Russia and Ukraine has further amplified the company’s problems. So, if similar conditions continue in the near term, Tesla stock might face some major challenges in the coming days.
Supply chain bottlenecks will hurt Tesla
As previously stated, supply chain bottlenecks and rising price levels during the pandemic negatively impacted TSLA stock. Now, this ongoing conflict between the two nations will bring in yet another unpredictable course to the market if an armed clash on Europe’s border takes place.
As the U.S. semiconductor industry is heavily dependent on Ukraine and imports nearly 90% of neon supplies from the region, the supply chains might have to undergo substantial pressure if Russia prevents such imports.
Like most other auto manufacturers, Tesla’s shipments were hit due to supply chain disruptions in 2021. Last year, the company also had to temporarily shut down one of its manufacturing facilities, delaying shipment deliveries. However, as Tesla directly sources chips from manufacturers, the impact was not too severe.
The political climate is expected to remain volatile in 2022, so investors should brace for another year of supply chain bottlenecks. However, industry experts believe the effects to be limited compared to the last 20 months.
Rising price levels and lower profits
Many investors even went on a selling spree when U.S. President Joe Biden promised to take action against the Russian invasion of Ukraine. An outright attack by Russian troops may drive up inflation numbers, which are already near 40-year highs and might be a near-term tailwind for Tesla.
On the other hand, an uncertain macro environment is likely to push crude oil prices higher, which should accelerate the adoption of battery-powered vehicles. Tesla is the world’s leading EV manufacturer and is well poised to take advantage of the secular shift towards the consumption of electric vehicle adoption.
Should you buy or sell TSLA stock right now?
Tesla has successfully gained massive traction in the EV space. Its rapid expansion has allowed the EV heavyweight to race towards profitability in recent quarters. It reported a positive GAAP earnings per share for the first time in 2020 and this metric surged higher by a whopping 666% year over year in 2021. Tesla manufactured 936,222 cars in 2021 and reported sales of $53.8 billion.
While top-line growth is bound to decelerate, analysts tracking the stock expect Tesla to increase revenue by 53.8% to $82.8 billion in 2022 and to $104 billion in 2023. Comparatively, its adjusted earnings per share are forecast to rise from $6.78 in 2021 to $12.73 in 2023.
TSLA stock is valued at a forward price to 2022 sales multiple of 9.5x and a price to earnings multiple of 72.9x which is still very expensive. However, the company will shortly open two new gigafactories in Berlin and Texas which will expand its manufacturing capabilities and drive costs lower.
Analysts tracking the TSLA stock have a 12-month average price target of $963 which is 26% above its current trading price.