At the end of 2013, Tesla's closing price was $10.03. A decade later, Tesla's shares have experienced a meteoric rise with its share price hitting an all-time high of $1000 in 2020. Throughout 2021, Tesla continued to impress, outperforming analyst predictions about its earnings-per-share.
Tesla has established a unique position in the market: a position that is now thrown in doubt by the EV maker’s current capital structure, balance sheet, and presence of strong competitors in the EV market.
Now, investors are wondering whether or not Tesla is a good investment but to understand that, a comprehensive organizational analysis is needed.
Everything to Know about Tesla
Contrary to what you may believe, Elon Musk is not the founder of Tesla. The company was founded in 2008 by two engineers Marc Tarpenning and Martin Eberhard. During its early rounds of funding, it caught the eye of Paypal’s co-founder Elon Musk and he became the head of the board of directors. Other co-founders were JB Straubel and Ian Wright but they both left the company for other ventures.
It wasn’t until 2008 that Tesla released its first car the Roadster and opened its first manufacturing plant in Fremont California and its headquarters in Palo Alto California. It was the same year that Elon Musk took over as the CEO and product architect of Tesla and still holds these positions today.
For a company that was once on the brink of bankruptcy, Tesla has grown exponentially by creating innovative electric cars along with electric vehicle powertrain systems and components. By 2021, Tesla had a network of 598 galleries, service centers, and retail stores.
As the company grew, it expanded its offerings to include other Models like the Model 3 Sedan, Model S, Model Y, Semi truck, the SUV-style Model X, and the highly anticipated Cyber truck. Tesla has expanded its operations globally with locations in Europe, Asia, and the United States.
Tesla’s Financial Situation
Since releasing the Roadster in 2008, Tesla now controls two-thirds of the EV industry. The $550 billion EV giant produced over 1.4 million cars in 2022; a 47% increase from 2021. But how was Tesla able to grow so much in such a short time?
It leveraged debt to fuel its growth, accumulating liabilities of $30.5 billion by 2021. The EV maker had over $5.7 billion in short-term liabilities, $5 billion in long-term debt, and $925 million in customer deposits for undelivered products. Most of the company’s valuable assets are illiquid long-term assets and Tesla holds less than $18 billion in cash.
Their balance sheets seem to be in good shape. As of 2022, Tesla’s total assets are $41 billion while its total liabilities are $26.7 billion leaving the company with a good debt/equity ratio of 0.13. The EV giant has also paid off most of their long-term debt and the amount currently stands at $2.1 billion.
Overall, Tesla has been profitable in the last five years generating $14.72 billion in Cash from Operations. In 2022, their total revenue was up by 51% from 2021, bringing in $81.46 billion despite the challenges it faced.
Their huge vehicle sales were mainly due to the increase in production capacity of the Fremont factory and Gigafactory Shanghai. The gigafactories in Berlin and Texas also started production in 2022 which helped Tesla’s delivery proficiency. However, the EV leader still has its fair share of liabilities. While its 2022 growth was okay, that same year, Tesla’s cost of revenue increased by 53% mainly due to the rising cost of raw materials, battery cell manufacturing, and logistics.
Their profits have not been outstanding as of late, but they make up for it with their cash flow and good net margins which allows them to remain financially viable.
Tesla Share Analysis
The value of Tesla shares started to pick up in 2017 but it was in 2020 that it really exploded. After overcoming the setback caused by Covid 19, Tesla shares gained 740% that year and dethroned Toyota as the most valuable car company. Tesla was also added to the S&P 500 and executed a 5-1 stock split which allowed its stock price to grow even more.
Despite the slowdown in stock growth in 2021, Tesla ended the year with a 50% gain and a market capitalization of a little over $1 trillion placing it among the top 1% of companies that have achieved this. While 2022 was not kind to the EV giant, there was another Tsla stock split after its shareholders approved a 3-1 stock split in August 2022. By reducing Tesla stock price, it will become more attainable for investors and allow them to buy and sell more for profit since the EV maker doesn’t pay dividends to its investors.
Shaking off the doubt and criticism of 2022, Tesla shares are off to a good start having risen by 56% as of 6 April 2023. Tesla has been working on improving its Full Self-Driving technology that will change the scope of autonomous driving. It is still in its beta testing and is now active in 400,000 cars in the US and Canada. No one has heard much about the Optimus robot since it was unveiled at Investor’s Day last year but for the meantime, the company is focusing its efforts on creating cheaper battery technology.
Tesla is planning to use iron-based batteries in its semi electric truck and a version of its electric vehicles. These batteries will not only help with price cuts but are less of a fire hazard compared to other batteries, improving the attractiveness of Tesla EVs. Long-term forecasts by analysts also expect Tesla’s stock price to hit $360 by the end of the year as the company prepares to increase production and maintain price cuts.
Risks and Challenges Facing Tesla
Right now, Tesla has to deal with a multitude of risks and how they handle them could significantly impact its future growth. Tesla had a decade headstart with its dominance in the EV market. But as more competitors join the scene, the threat to its position as a market leader increases.
Tesla is currently facing stiff competition from companies like Ford, GM, Nio, Rivian, and Lucid as they are ramping up production and sales to attract more customers. These manufacturers are producing more affordable EVs with sophisticated designs and features, enough for buyers to consider them a great alternative to Tesla.
Funny enough, Tesla’s CEO Elon Musk also poses a threat to the growth of the company. Musk's involvement in Twitter and some of his statements could affect the brand and reputation of Tesla. Some of Musk’s controversial tweets have already placed Tesla in hot water in the past with national and international automotive regulators as the tweets were deemed misinformation.
Tesla has also been accused of having a toxic workplace environment, fostering a culture of harassment and discrimination. Elon Musk’s anti-union stance also hasn’t done Tesla any favors in the social scene.
Is buying Tesla stock worth the risk?
Tesla’s history is filled with tales of success, but what about its future? The EV market is still relatively new and growing but with the interest it is garnering, it is expected to continue to grow at a fast pace, reaching a market volume of $858 billion by 2027 with sales going up to 16.2 million vehicles.
Tesla has wasted no time, positioning itself to take advantage of a booming market. It continues to push boundaries with its technology enough to be regarded as one of the most innovative companies in the world. Apart from its well-known electric cars, Tesla has made a number of contributions to the world of technology with its ever improving Supercharger network, solar roofing, and autonomous driving features. Although new competitors are entering the market, they are struggling to increase their demand and delivery while Tesla is ramping up production and pocketing a tidy profit.
It is way ahead of its peers in the automotive industry generating $3.29 billion in net income in the third quarter of 2022, beating its biggest competitor Toyota. Elon Musk is also very optimistic about Tesla’s prospects and is expecting vehicle delivery growth to average 50% annually over time.
The competition Tesla faces have their own benefits but by focusing on the increased competition, it's easy to forget one element working heavily in Tesla's favor; its impressive brand. Tesla’s customers believe they are serving a bigger purpose and have keyed into the vision of Elon Musk and his larger-than-life personality.
So, should you invest in Tesla’s stock? That is entirely up to you. It is something you should decide based on your needs and research. The stock market still values Tesla highly and is expecting it to continue its impressive run. You can get Tsla stock price, news, and other financial information easily from sources like Bloomberg and Reuters. So, if you are interested in investing in Tesla, the current fall in stock price presents a good buying opportunity. But be prepared for short-term fluctuations and volatility as the stock market reacts to the current economic uncertainty.
Three Ways to Invest in Tesla Stock
Once you decide to add Tesla to your investment portfolio, these are the best investment options to consider.
1. Long-term hold
No one can accurately predict what is going to happen in the stock market a few months or years from now. However, holding Tesla stock long-term is still a lucrative way to make money:
● Its performance in difficulties: It is important to consider that despite the challenges Tesla experienced in 2022, it still did well selling over 1.2 million cars.
So, instead of being focused on any short-term deviation or fluctuations, focus on Tesla’s current production and top-line growth and the resilience it has shown in the face of difficulties.
● Position in the EV market
In 2022, Tesla was leading the market with an 18.1% market share. CEO Elon Musk also revealed on January 25th that the EV maker is currently seeing an increase in its orders, more than their current production capacity mostly due to the price cuts they implemented. Overall, Tesla is in a good position for growth.
● Tesla's performance in the Chinese market
The Chinese market is the largest market for EVs and Tesla is outperforming the leading Chinese EV makers. Tesla’s smooth relationship with the Chinese government could also translate to subsidies and tax breaks which would encourage its expansion in the Chinese market.
2. Tesla Options
Tesla options are a financial derivative that allows you to trade Tesla stocks at a specific price before a set time. To invest in Tesla options, there are two main types available: calls and puts.
For instance, if you believe the market is going to rise within a set period, you can execute a call option but if you thought the market was going to fall, you can buy a Tesla put option. But what makes Tesla options a good investment?
Tesla options are currently one of the most sought-after option trades on Wall Street accounting for nearly 13% of all options trading in the market. On an average trading day, there are more than 41 million contracts changing hands and the whole options market has been in a boom recently.
Plus, Tesla options are a great way to manage risk and the general optimism about Tesla in the options market, gives it a competitive edge against other options.
3. CFD: Trading the Difference
When you buy stock on an exchange like Nasdaq: tsla, you actually take direct ownership of the share and the idea is to consider it as a long-term investment. However, trading CFD works a bit differently. Trading with CFD or contract for difference, means you do not own the underlying shares directly but instead, speculate on the price difference of the asset.
Trading Tesla CFDs is a short-term investment because the derivative contract only lasts for a short period. It mirrors the live prices of the stock market so, you are getting the same exposure or experience you would get if you had bought the shares. The leverage provided for this investment is also significantly higher than other trades and there are few requirements for entry.
Comparing the Options
The form of investment you go for largely depends on your investing style, investment period, and risk appetite.
Buying Tesla stock long-term comes with a certain degree of risk like all investments but it is minimal compared to CFD or options. Since your investment wouldn’t be subject to short-term fluctuation, you can enjoy long-term returns as Tesla’s stock price rises. Imagine if you had invested $1000 in Tesla 5 years ago. You’d have $4973, a return of 397%. However, not everyone can wait for a long time for the gains to accrue. This is where CFD and Tesla options come in.
They are both investment methods that require investing in the underlying asset rather than owning it but this is where their similarities end. With options, you can always choose to acquire Tesla shares later on but this isn’t possible with CFD.
Also, CFD investing works best in trending markets because of the limited time frame while options are better for investing in all types of market conditions. What if you know little about investing? Then CFD is a better alternative to holding shares or buying options. CFD does not require a lot of tools or analysis compared to the other two and can be used to grow your knowledge and understanding of the market.
Why trade Tesla Stock CFD with VSTAR
Start trading one of the world’s most exciting CFDs on the global trading platform VSTAR. VSTAR gives you access to a number of CFDs as you invest in stocks using their platform.
Once you open an active account, you can start investing with a minimal deposit of $50 and zero commission fee to help you gain more profit as you become familiar with the market.
It is important to remember that it can be quite risky to invest using CFDs because of the short-term price changes. For this reason, VSTAR offers their $100,000 demo account where investors can catch trading opportunities in the stock market with no risks attached.
It is impossible to accurately predict Tesla’s future, it is fair to say that the company still has some specific advantages that will help it perform well long-term. It is still the sixth most valuable company in the world behind Berkshire Hathaway and enjoys loyalty from its growing almost cult-like fanbase actively pushing for its growth.
Making any sort of investment comes with its risk but investing in Tesla despite all its advantages, is not for the faint hearted and it is important to decide for yourself if it deserves a place in your portfolio.
*Disclaimer: The content of this article is for learning purposes only and does not represent the official position of VSTAR, nor can it be used as investment advice.