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1 Green Flag for Tesla in 2022, and 1 Red Flag

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The electric vehicle pioneer is growing but faces a real risk.

Tesla's (TSLA -0.18%) recently announced plans for a stock split have been driving its stock price higher over the past week. Though stock splits, in theory, don't increase shareholders' value, they are generally viewed positively. If you are considering buying Tesla shares, these two key charts showing a green flag and a red flag for Tesla's business might help you in your decision-making.

Tesla is growing, fast

The demand for electric vehicles (EVs) is high, and Tesla is scaling up production fast to meet this demand. In 2021, the company nearly doubled its deliveries -- from 499,550 units to 936,172 units. The growth in Tesla's car deliveries in the past decade -- from mere 2,600 units in 2012 to nearly a million in 2021 -- is commendable.

Indeed, during this period, the company's revenue also surged. Tesla's revenue grew at an average annual rate of 91% between 2012 to 2021.

Tesla made its first annual profit of $721 million in 2020. The profit surged to $5.5 billion in just a year. Tesla started deliveries from its German factory recently and is expected to open its Texas factory in about a week. In short, the company looks set to grow in the years to come.

Competition is heating up

Tesla largely had the entire EV market for itself for several years. But that is no longer the case. The number of players entering the EV space keeps on rising. Tesla faces competition from legacy car companies as well as new EV makers.

Despite nearly doubling deliveries in 2021, Tesla's market share in the first nine months of 2021 fell 4.5% compared to the same period last year. The drop shows that the overall EV sales are growing faster than the growth in Tesla's deliveries.

Chinese automaker SAIC sold 479,000 electric vehicles, including 411,164 fully electric vehicles, in the first nine months of 2021. SAIC's electric vehicle sales rose 231% year over year in this period. Backed by the strong sales growth, SAIC's market share of battery electric vehicles (BEVs) rose 6.1% in this timeframe.

The Tesla 2022 Roadster. Image source: Tesla.

Tesla faces the risk of a shrinking market share as competition grows. What's more, growing competition may also hurt Tesla's margins.

There is more than meets the eye

Though a dent in Tesla's market share looks concerning, it may not necessarily be. As many as 256,000 of SAIC's unit sales were of the Wuling Hong Guang Mini EV, which SAIC makes in collaboration with Wuling Motors and General Motors. The four-seater EV's pricing starts at around $4,500. Clearly, that's an altogether different market than what Tesla is targeting. Though Tesla may not be concerned about SAIC's rising share, it is certainly keeping an eye on what its competitors are doing.

Tesla has managed competition adeptly so far. Though how rising competition impacts Tesla is something to keep an eye on, it shouldn't be a reason to avoid this top stock.

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