Bull vs. Bear: Could Tesla Be the Best-Performing S&P 500 Stock of 2022?

Tesla is now a massive firm, and that makes it more difficult to multiply from right here.

Daniel Foelber

Key Aspects

  • The electrical automobile alternate is showing more doubtless than ever before.
  • Tesla is now one in all the largest components of the S&P 500.
  • 2022 can be one other giant year for Tesla’s alternate, but that doesn’t imply its stock will proceed to salvage a free hurry. 

Tesla (NASDAQ:TSLA) and the electrical automobile (EV) alternate proceed to buy the spotlight as growth traders gape in opposition to industries with paradigm-shifting expertise and prolonged-term potentialities. From rookies to legacy automakers, few industries are reworking before our eyes faster than the auto alternate.

Tesla has developed a recognition for beating and even main the market to novel heights. Right here are arguments why that will or also can no longer proceed.

A red Tesla Roadster drives down a road with mountains visible in the background

The 2022 Tesla Roadster. Image offer: Tesla.

A staple within the S&P 500

Daniel Foelber: In May possibly more than seemingly additionally 2019, fragment costs of Tesla fell to a multiyear intraday (shatter up-adjusted) low of $37.01 per fragment. The stock set up is roughly $1,060 per fragment at the time of this writing. On Dec. 21, 2020, Tesla became as soon as added to the S&P 500, a ticket Tesla had change into a right firm whose alternate deserved to be reflected in a single in all The United States’s most revered indexes. At the time, Tesla became as soon as the fifth-largest S&P 500 firm. At the unusual time, Tesla remains the fifth-largest S&P 500 ingredient no longer since the various components have outperformed Tesla, but rather consequently of tech stocks as a total have won so extra special market fragment in contrast with varied industries.

Assign in thoughts that the discontinuance 10 largest corporations within the S&P 500 originate up nearly a third of the index’s weight. Outperformance from top dogs admire Apple, Microsoft, Alphabet, Tesla, and Nvidia have contributed foremost strikes within the S&P 500 over the closing few years. For Tesla to proceed main the set up bigger, the firm needs to proceed to grow its top line whereas improving its profitability. It also needs persisted economic and environmental purple meat up for transitioning passenger autos to EVs, no longer necessarily thru federal credit ranking, but from climate needs and person adoption.

Tesla became as soon as the only-handiest-performing S&P 500 ingredient in 2020. But as Tesla grows, it becomes more and more more difficult to outperform. Tesla stock increased over sevenfold in 2020 by myself. If it were to carry out that now, it would possibly maybe more than seemingly maybe have a market cap increased than Apple and Microsoft blended. Tesla also can proceed beating the market, but turning into the glorious-performing S&P 500 ingredient in 2022 is also out of attain.

Traders would possibly maybe more than seemingly maybe appropriate launch taking a gape at valuation

Howard Smith (Tesla): Tesla stock had one other sizable efficiency in 2021, rising about 50% for the year. That comes after its monster form in 2020 of over 740%. So it makes some sense to have faith in that the lope also can proceed in 2022. After all, Tesla is anticipated to launch automobile and battery production at two novel manufacturing companies throughout 2022, and EV market set up a matter to has appropriate started taking off. 

Tesla reported 936,172 automobile deliveries in 2021, representing an 87.4% originate bigger over 2020. When the firm stories its stout-year 2021 results, it be bigger than seemingly that this is in a position to more than seemingly maybe also squawk its 2021 revenue exceeded $50 billion. The alternate is now winning, with accumulate revenue of almost $3.2 billion thru the first 9 months of 2021.

But for the first time, 2022 will embody accurate competition. Vulnerable automakers including Standard Motors, Ford, and Volkswagen have novel electric autos rolling out. And more fresh, rapidly-rising EV makers admire Lucid Community, Nio, and XPeng are launching autos meant to compete with Tesla’s demographic. 

Tesla’s alternate is seemingly to proceed to thrive in 2022. But with varied players in the end also getting meaningful EV gross sales, traders will seemingly be pushing to evaluation growth and valuations. This ability that Tesla stock would possibly maybe more than seemingly maybe in the end alternate on bigger than appropriate promise. The market is forward-taking a gape, and Tesla will without doubt salvage a excessive set up-to-earnings valuation in contrast with others. But even when it bigger than doubles its accumulate revenue to $10 billion in 2022, the P/E would be over 100 at its most well liked fragment set up. 

Whereas Tesla stock would possibly maybe more than seemingly maybe need one other appropriate year, it looks reasonably priced to remark that as traders in the end set up it a correct valuation, there is known as a whereas before the alternate catches as a lot as the fragment set up. If that is the case, Tesla also can no longer seemingly lead the market bigger again this year. 

Tesla’s dimension has its limits

Tesla’s years of market-crushing efficiency is also over within the rapid- to medium-term because the firm takes time to grow into its valuation. On the different hand, Tesla also can very successfully befriend a key role within the methodology forward for mobility and renewable power in a methodology that is laborious to heart of attention on correct now. For that motive, traders also can have in thoughts Tesla as a distinguished candidate in an electric car stock basket, or set up the stock on their gape list in case it goes on sale throughout a stock market promote-off.

This article represents the belief of the creator, who also can disagree with the “legitimate” recommendation space of a Motley Fool top rate advisory provider. We’re motley! Questioning an investing thesis — even one in all our maintain — helps us all remark seriously about investing and originate decisions that reduction us change into smarter, happier, and richer.

Daniel Foelber has the following options: long February 2022 $185 puts on Apple and short February 2022 $180 puts on Apple. Howard Smith owns Apple, Lucid Group, Inc., Microsoft, and NIO Inc. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), Apple, Microsoft, NIO Inc., Nvidia, Tesla, and Volkswagen AG. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.”>

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