Why is the Tesla share price falling in 2022?

| Last Updated May 12, 2022

electric vehicle recharging on the outskirts of the city

  • Tesla’s market value has dropped to $834bn
  • Elon Musk’s plans to sell off 10% of his shares triggered the declining trend
  • Tesla plans to ramp up production in its existing and new production facilities

Tesla (NASDAQ:TSLA) is a name that is not new within the investor community nor in the business world, and its share price hasn’t had the greatest run lately.

After an exponential growth streak in the past two years, Tesla’s share price has been declining for the past three months. The EV stock, which hit the trillion-dollar mark in October 2021, has dropped to around $834bn. Why the 20% decline in market value? Has the EV sector been replaced by a new leader? Or maybe Tesla is struggling? Let’s find out.

The story behind the continuous decline in the Tesla share price

Tesla’s share price is currently trading at $809.87. After peaking at a price of $1,222, the stock started its downward journey.

When the news of Elon Musk selling 10% of his shares of Tesla hit the market, the share price suffered a considerable blow. In fact, within two days, the company’s stock dropped by approximately 12%. Since then, the upward streak of these shares has yet to return.

In my opinion, the huge growth of Tesla’s share price in 2020 was a bubble destined to burst. Hence, the share price is steadily declining over the past few months. Moreover, the company’s price-earnings ratio remained astoundingly high during this growth streak.

In comparison, other car companies like GM Motors and Ford also maintained a steady increase in share price. But their valuations were actually backed by earnings rather than investor expectations of future growth.

Tesla’s future plans

Tesla reported $17.72bn sales in the fourth quarter of 2021. And it set new records of producing a total of 930,422 vehicles and delivering 936,172 vehicles. That’s an impressive 87% increase in deliveries last year!

Moving forward, Tesla is all set to beat the upcoming competition in the EV market. At least, that’s what I think. Why? Because the group is currently ramping up production at new factories in Austin and Berlin. This will undoubtedly push deliveries up even higher moving forward. And, more importantly, help retain its market share from new entrants into the electric vehicle sector.

Final thoughts on the Tesla share price

Tesla has a promising future. No doubt its visionary leader has excellent progressive plans for the company. But the stiff competition from the car giants is a lurking threat that the EV maker should seriously take into consideration. Moreover, the current declining trend of Tesla’s share price has furthered raised concerns for investors like me.

Undoubtedly, Tesla is the current leader of the EV market. But the time is not far when there will be an electric vehicle from every car maker in the industry on the roads.

Will Tesla be able to maintain its leading position and the earnings growth rate? I’ll have to wait and see. In the meantime, I’ll be keeping Tesla on my watchlist until the valuation looks a bit more reasonable.

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Saima Naveed does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned at the time of writing. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.