Tesla at a Crossroads: How Will Near-Term Headwinds Impact TSLA Stock?

Tesla (NASDAQ:TSLA) has been on quite the rollercoaster ride lately. The stock languished in the $170-180 range for an extended period before spiking to over $250 in recent weeks. However, the rally has lost steam, with the shares retreating amid the broader tech sector selloff.

I previously advocated buying the stock under $200. However, with the rapid run-up, I have turned more cautious. In some of my recent articles, I have talked about trimming positions after the recent rally as a short-term trade. These trades have turned out very well so far.

Regardless, today’s piece isn’t a trading article. We will take a closer look at the bull and bear case for Tesla over the near-term, the medium-term and the long-term. Let’s dive in!

Near-Term Outlook Remains Precarious for TSLA Stock

While Tesla’s recent Q2 earnings showed continued strong growth, with total revenue increasing 2% year-over-year (YOY) to $25.5 billion, the company still faces significant near-term challenges and uncertainties. One major risk is the potential for reduced electric vehicle subsidies if a Republican administration takes over the White House in 2024. Elon Musk has already expressed concerns about this possibility impacting demand.

The tech sector’s weakness and valuation concerns are other factors currently weighing on the stock. Tesla trades at a lofty forward P/E of 96x based on 2024 earnings estimates. While the company’s growth justifies a premium valuation, the multiple leaves little room for error. Any signs of slowing momentum could lead to a de-rating of the stock.

Supply chain issues and rising battery costs are additional near-term headwinds. While Tesla has navigated these challenges relatively well so far, the situation remains fluid. Sustained margin pressure or production disruptions could negatively impact financial results in coming quarters.

Tesla’s Long-Term Dominance Remains Intact

Looking out longer-term, it’s hard to bet against Tesla. The company has established itself as the clear market leader in EVs, with an exceptionally strong brand and a widening competitive moat. It’s difficult to find a true “Tesla killer” on the horizon.

Most EV startups are struggling with cash burn and endless dilution. Legacy automakers are also playing catch-up and lack Tesla’s first-mover advantage and software lead. And Chinese EV makers face steep tariffs and an uphill battle to gain traction in the U.S. market. Thus, comparing Tesla with any Chinese EV company is useless.

In addition, Tesla’s future growth runway looks robust. New models like the Cybertruck may not be the best thing out there, but hey, it’s still contributing to Tesla’s financials. The company will be well-positioned to be a prime beneficiary of the global shift to electrification and clean energy in the long term.

Bullish analysts see the stock hitting $300-plus within the next 12-18 months. I disagree, though. I think it is more likely that Tesla will remain below $250 unless interest rates are cut at lightning speed. And even if that happens, that’ll probably be because something no-bueno will be happening to the economy.

The Bottom Line

So where does that leave us on Tesla stock? Given the near-term uncertainty and the recent run-up, I’m sticking with a hold rating for now. However, I would quickly upgrade that to a buy on any pullbacks below the $200 level or signs of the broader market regaining its footing.

Long-term investors shouldn’t get too caught up in the short-term gyrations. Tesla’s multi-year outlook remains highly attractive. But in the immediate term, some caution is warranted. Keep a close eye on key developments around subsidies, margins and demand over the coming months. For now, Tesla is a “wait and see” situation, but I suspect the next major buying opportunity may be just around the corner.

On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.