Decoding The Stock - TESLA

When it comes to investing in stocks, there are a plethora of options available. From popular blue-chip stocks like Apple and Google to small and unknown penny stocks, there are several options available to an investor. Then, there is also the option to invest in a specific market sector like technology, banking, automobiles, and many more. However, the main goal of any investor is to generate high returns on their investment. While it may sound like an easy task, selecting and analyzing companies to invest in is a process that requires proper knowledge and skill. But, if anybody who is interested in the stock market dedicates a bit of their time towards proper due diligence and research before investing, it is not that difficult to generate huge wealth from the stock markets.

The financial markets often trend in sectoral rotations. What this means is that certain sectors may trend for a particular time period when market factors are in their favor. For example, in recent years, tech stocks have gained a lot of attention and have received huge inflows of investment from market participants. As an investor, it is our goal to identify these trending sectors and invest in companies that are bound to benefit from these trends. One such sector that has huge potential in the coming future and is currently experiencing a powerful growth phase is the electric vehicle market. With the rising prices of petroleum and increasing levels of pollution all around the globe, people are switching over to greener and efficient transportation options, which are; Electric vehicles. 

Now, Tesla is one such company that has witnessed tremendous growth in recent times and is one of the largest electric-vehicle manufacturers in the world. In this article, we will go over Tesla, Inc. and its stock while understanding the reason behind its recent price rise and volatility in order to get a holistic view of this company. So, let’s get started!

Understanding the Basics of TESLA INC.

Before investing in any company, it is crucial to understand the roots of a company while exploring what it does and how it functions. Tesla, Inc. is an American company based in Palo Alto, California that is engaged in the production and manufacturing of electric vehicles and clean energy products. Their product range includes electric vehicles, energy storage solutions like solar panels and solar roof tiles, and other electric eco-friendly solutions.

Founded by Martin Eberhard and Marc Tarpenning in July 2003, Tesla Motors was named as a tribute to the legendary inventor and electrical engineer, Nikola Tesla. Ranked as the world’s best-selling electric vehicle manufacturer, Tesla holds a 23% market share of the battery and electric car segment and a 16% market share of the plug-in hybrid segment. Tesla Motors is also the largest automaker by market capitalization with a market cap of over $550 billion, as of May 2021.

Billionaire business magnate Elon Musk has served as the CEO of Tesla Motors since 2008. Elon Musk believes that the future lies in sustainable technology and that is why Tesla Motors was created to expedite the transition to sustainable transportation and energy. This is being obtained through Tesla’s electric vehicle line-up and solar-powered energy solutions. Elon Musk’s Tesla began production of their first electric vehicle model, the Roadster, in 2009. This was followed by the launch of several different electric vehicles such as the Model S sedan in 2012, the Model X SUV in 2015, the Model 3 sedan in 2017, and their latest Model Y crossover in 2020. Tesla also surpassed its 1 million mark of overall electric vehicles produced in 2020.

Tesla’s Current Share Price 

As of May 2021, Tesla (Ticker: TSLA) is trading at around levels of $580 to $600. However, during the course of 2020, TSLA rose almost 700%, which is a huge move for any stock in such a small timespan. Along with its incredible performance, Tesla’s stock was also introduced in the S&P 500 in December 2020. What’s more interesting is that Tesla’s stock price has surged more than 20,000% since it went public in 2010.

This is one of the reasons why TSLA has been an investor-favorite stock. This powerful bull run has been driven by high production growth, increasing public interest in electric vehicles and sustainable energy, and the CEO, Elon Musk’s unique vision for the company. While many Wall Street analysts and experts suggest that Tesla’s stock price is currently in a bubble that is bound to burst, the reality might be totally the opposite.

While Tesla’s stock price has seen a period of correction lately, it is still one of the largest companies in the electric-vehicle segment. The company has seen tremendous growth in the last few years and has seen a massive rally in 2020, making Tesla the world’s most valuable car company. Growing larger than several giants of the automobile industry like Ford and Toyota, Tesla is the largest automobile manufacturing company with a market caprification of around $550 billion as of May 2020. This figure was around $800 billion a few months ago. Nonetheless, Tesla is an ever-growing and evolving company that has several interesting plans for the future and its success has also given Elon Musk the title of the world’s second-richest person! 

With almost zero competition in the electric vehicle segment and solar energy business, Tesla has been dominating this sector and thus, the company has witnessed huge growth in the past few years. With an increase in businesses and governments moving towards alternative and sustainable solutions that have a greener effect on our environment, Tesla’s stock has a very positive outlook for its coming future. Seeing returns as high as 700% in a single year, it is clear that Tesla is quite far ahead of its competition not only in its technological abilities but also in offering performance and quality at an affordable price. 

Trend Analysis 

As seen in the daily time frame chart of TSLA below, this stock has been in a consistent uptrend since the beginning of April 2020. Starting its rally from levels of around $100, the stock was in a powerful uptrend that finally faced resistance in the starting of 2021. Since January 2021, Tesla’s stock has been facing resistance and has not been able to move past the $900 levels. Currently, the price of TSLA is hovering in the $500 to $600 range as the past few months have not been very encouraging for this stock. However, this might be a consolidation period before TSLA begins its next bull run reaching new all-time high levels. 

Reason Behind TSLA’s Bull Run In 2020

While as of May 2021, Tesla’s stock is witnessing a corrective phase and has retraced back to the $600 level, the incredible rally of around 700% that it witnessed during 2020 had several factors behind it. From increasing investor confidence in the company to becoming a profitable organization after a long period of struggle, there are several reasons why TSLA surged over 700%. Let’s discuss some of those reason in detail – 

  • Investor Confidence & Future Prospects

    One of the main reason behind Tesla’s stock price surge is the increasing investor confidence in the company. With Tesla’s stock being inducted in the S&P 500, this share is considered as a blue-chip stock and people have all the more reason to believe in the company and its future. Along with increasing confidence in the company, Tesla has a potentially bright future as it is rapidly expanding its product line-up with innovative and efficient products that help the environment by reducing its carbon footprint and are better alternative eco-friendly solutions. 

  • First Full Year of Profitability

    2020 was the first year for Tesla where it had a full year of profitability as it reported a profit of $721 million on around $31.5 billion in sales. This was a huge contrast when you compare the earning of 2019 where Tesla reported an $862 million loss on about $24.6 billion in sales. Tesla topped Wall Streets’ expectations in 2020 and this drove a lot of interest from investors of all categories. The company also beat Wall Street’s delivery estimates in every quarter and produced more than 500,000 vehicles in 2020.

  • Tightening Emission Regulations Around the World

    Another factor that helped fuel the rally is the fact that governments around the world have been tightening emission regulations around the globe. This in turn has become an advantage for electric vehicles as consumer demand has increased rapidly. This is also supported by the fact that the coming future will rely on alternative solutions and green technology. The increasingly clear picture of a future auto industry dominated by zero and low emission vehicles has helped the electric vehicles sector tremendously. 

  • Stock Split in 2020

    The stock split that happened in the summer of 2020 was another reason that helped fuel the rally. With Tesla’s stock being more affordable, more investors had the access and ability to invest in this stock. This helped drive investor enthusiasm and with the addition of Tesla in the S&P 500, Tesla’s stock became the hottest investment option for investors everywhere. However, this enthusiasm did reduce a bit at the starting of the first quarter of 2021 as the stock is currently facing a corrective phase.  

  • Tesla’s CEO – Elon Musk

    The final factor behind Tesla’s rise is Tesla’s CEO himself; Elon Musk. The inspiring and eccentric personality of Elon Musk has contributed a lot to the rise of Tesla’s share price. Be it his funny meme collection on Twitter or his other ambitious projects such as SpaceX and Neuralink, he has inspired millions. Musk’s personality inspires confidence and this is one of the reasons behind people investing in Tesla. 

How is Tesla’s Business Model Different from its Competition?

According to Tesla’s founder and CEO, Elon Musk, the mission of tesla is “to accelerate the advent of sustainable transport by bringing compelling mass-market electric cars to market as soon as possible”. The market for electric vehicles is growing and expanding its reach rapidly and there are certain factors behind this boom. From new regulations on vehicle emissions to safety standards and technological advancements, customer expectations keep on changing and EV’s have started to become a mainstream product. The rise in popularity of electric vehicles is largely due to Tesla and its unique business model. But what makes Tesla’s business model different? Let’s find out!

  • Innovative and Adaptive Development Process

    The way Tesla develops and creates cars is unique and they create cars as if it is a software product. They build cars by developing innovative software on sustainable hardware, allowing the product to evolve and improve with time through updates. This is just like an Android or Apple device that improves its software and user experience with updates over time. 

  • Direct and Simplified Sales Process

    Tesla’s method of selling their products is unlike any other car manufacturer where traditional automobile manufacturers sell through franchised dealerships. Instead of customers visiting franchised car dealerships, Tesla has a direct sales process that is executed through an international network of company-owned showrooms and galleries, along with online portals where one can purchase a Tesla from the comfort of their homes, simplifying the entire process. 

  • New & Evolving Products in the Sustainable Sector 

    Another aspect that makes Tesla’s business model unique is the fact that they are consistently expanding their product lineup with new and innovative energy storage solutions. Apart from electric vehicles, Tesla also manufactures solar panels, solar tiles, and other green-energy systems giving them a huge advantage in the alternative solution market. As governments tighten the rules on emissions due to environmental pollution all around the world, Tesla has the potential to expand its market all across the globe. As seen in the chart below, Tesla has been expanding its global reach and has witnessed a drastic increase in revenue from markets outside of the U.S.

Conclusion 

Tesla has barely scratched the surface of its potential. They are at the forefront of a rare event in human history, which is the transition to clean and renewable energy initiated by the climate crisis. Every year more countries are joining the initiative and are pushing for and incentivizing a total transition to electric vehicles. Currently, EV sales around the globe are estimated at 2-3% and that number will continue to grow. Tesla has a first movers advantage in terms of their technology and data collected through miles driven. They are further in the development of technology such as FSD (Fully-Self-Driving Vehicles) and are ahead of most other companies in this segment. Most importantly, Tesla is led by a CEO who never rests and is always looking to be ahead of the game in terms of growth and innovation. 

We hope that this article provided you with valuable information and a clearer picture of Tesla, Inc. With all this information, you can make a better and informed decision on whether you should invest in Tesla’s stock or not. While some may feel that Tesla’s stock is overvalued and in a bubble, the future for this company seems to be quite positive. However, before making any investment decisions, be sure to check the current market conditions and other factors that might affect the markets, as investments in the stock market are subject to market risk. If you liked this article, make sure to visit Jeremy’s YouTube channel “Financial Education” for more such informative content! Happy investing!