Is Tesla a Good Stock to Buy?

Is Tesla a Good Stock to Buy?

Is Tesla a good stock to buy: Elon Musk asked people while tweeting a poll, whether he should sell a 10% stake in the company? His gazillions of fans answered “yes”. Obviously, his tweets matter a lot!

It was Musk’s manner of addressing the controversy around unrealized profits being a manner to keep away from paying taxes. As soon as Musk sells his 10% stake in the company, the share market of Tesla goes down within hours. 

A huge tax bill was coming in due to Musk’s 23 million stock options granted in 2012 that authority and expired in August 2022.  That’s why he sold worth 6.9 billion stocks in early November and reached a record high of 1,243.39 on 4 November.

With a 21% down in Tesla’s stock, it still remains the most valuable and upgraded automaker in the world. The market capitalization of Tesla is around $1 trillion and more than 166 million shares are held by Elon Musk in the company.

TSLA shares rose by 700% in 2020. But with earnings plummeting after this big run-up, many investors may be wondering: “Is Tesla a good stock to buy now”? Before you make choice and come up with a decision “Is Tesla a Good Stock to Buy” consider the following things.

“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”- Elon Musk

Also, read| Indian Stock Market Basics For Beginners

Is Tesla A Good Stock To Buy

Tesla went public in 2010, offering 13.3 million shares at a price of $17 per share, and the stock is now worth more than $830 per share. Without a doubt, the investment was significant, but getting to this point was not easy.

Tesla is the world’s largest automaker, with a market capitalization that exceeds that of Toyota Motor Corp. (TM), Honda Motor Co. (HMC), and General Motors Co. (GM). Tesla has a market capitalization of around $800 billion, which is 1.5 times that of the next five automakers.

When the five largest automakers sold 40 million vehicles in 2020, compared to Tesla’s 500,000, it’s easy to see why market analysts are concerned.

So, what should you take away from Tesla’s meteoric rise as an investor? The meteoric rise begs the question, “Is Tesla a good stock to buy?” What will Tesla’s performance be like in the future?

For most corporations, a 700 percent increase in share price would be enough, but the highlight of 2020 was Tesla’s entry in the S&P 500 on December 21.

Tesla stocks remain class by themselves, you often can’t compare them with other rivals. Keep these facts as a note, but do your own research before making any decision based on your needs.

Pros And Cons Of Buying Tesla Stock

Pros of buying Tesla Stock

  • The recent earing report of Tesla recorded a number of both production and deliveries.
  • Tesla produced 179,757 vehicles in the fourth quarter and 145,036 vehicles in the third year. The growth is more than 71% which is impressive.
  • With a 62% increase in the year, Tesla has delivered 180,667 vehicles.
  • Tesla reached the goal of delivering 500,000 vehicles by the end of the year.
  • Even though the COVID pandemic hit Tesla production, then also the company delivered over 499,647 in 2020.
  • Tesla’s management team promised to deliver 50% annual growth over the coming years. The company is upgrading to produce more expensive models like Model S and Model X in addition to the Model 3 and Model Y.
  • The latest report states the construction of factories in Berlin, Austin, and Texas continues, and the moving of machinery to the Berlin location.
  • Tesla Semi and Tesla Cybertruck, expected to be released in 2021 and 2022, the company is utilizing Austin as the main factory.
  • The free cash flow remained positive in the second year’s row as well. In 2020 free cash flow hit $2.79 billion which is double than 2019 as the company collected $1.08 billion.  The free cash flow during the fourth quarter was $1.9 billion which helps Tesla to reach the finish line.
  • The company itself is doing well, the macro trend is also currently in Tesla’s favor.
  • Now, confident investors are placing their hope on autonomous vehicles in a long term. Toward that, a number of companies are working but Tesla’s lead is hard to beat.
  • The cameras, Radar, and GPS of Tesla are continuously advancing for years, that’s why Tesla vehicles are self-driving.
  • Continuous advancement opens avenues for growth. Elon Musk discussed using self-driving Tesla as a Robo-taxi. This would be a brilliant futuristic idea for anyone else but for Elon Musk and Tesla it is a definite possibility.

Cons Of buying Tesla Stock

  • Elon Musk has said that Tesla’s greatest asset is also its biggest threat.
  • Investors are hesitating by the tweet of the company’s CEO. For example- In 2018, Elon Musk tweeted he was “considering taking Tesla private at $420.”
  • In settlement of his suit with the US Securities and Exchange Commission., Elon Musk was forced to step down as the chairman of the board, because of that tweet.
  • It doesn’t bother Elon Musk, he alone beat billions of bucks off Tesla’s market value early last year, saying “Tesla stock is priced too high IMO.”
  • If Elon Musk weren’t around Tesla wouldn’t worth it as it is today. But Musk’s huge position also indicates risk related to the company and its stock price.
  • Tesla’s shares will undoubtedly suffer if Musk ever leaves the company to focus on his work at SpaceX or is simply terminated for his behavior. The only setback for Tesla shareholders is if it sticks around.
  •  Tesla is no longer the only name in the electric vehicles because of that it faces a lot of problems.
  • Earlier Tesla was once the electric vehicle company with the concepts of Electric vehicles, autonomous automobiles, cross-country networks of charging stations. Today there are a number of automakers in the cue of becoming the best electric vehicle on the planet.
  • Ford has invested in the electric vehicle field with startups like Rivian. While by 2025 GM is bringing an impressive 30 new electric vehicles.
  • Allegations on China’s three manufactures of Tesla’s Nio (NIO), Li Auto (LI), and XPeng (XPEV) are eating company shares.
  • In the US Tesla managed to increase its sale by around 80% in 2020 but faced difficulty in selling Electric vehicles in other parts of the world.
  • In 2020 the competitive Electric Vehicle market of China had been forced to cut the price many times.
  • Tesla is exporting Chinese-made electric vehicles to European markets until the completion of the Berlin Gigafactory and Tesla’s Chinese-made vehicle production capacity is stuck, according to monthly registrations.

Tesla Is Growing At A Faster Rate Than Other Automakers

Over a multi-year horizon, Tesla has been steadily increasing its vehicle deliveries, with a 50% annualized rate. From a very small base, Tesla has achieved an amazing growth rate. In comparison to the fastest growth of last year, by 90% Tesla grew revenue in the latest quarter.

In three years till the second quarter of 2021, more than 50% at an average year-over-year growth rate, Tesla has grown its quarterly revenue.

Among the top automakers, the highest average growth rate over the same time frame was 6.4% for Volkswagen (OTC: VWAGY). Tesla’s revenue was up 57% year over year in the third quarter and revenues for Ford (NYSE: F), General Motors (NYSE: GM), and Volkswagen is declining year over year.

In the most recent quarter, Tesla’s operating margin rose to 14.6%, which is higher than its competitors. For the coming several quarters, Tesla will continue to grow its revenue and is increasing its production capacity to meet demand. Indeed, more demand and revenue will support Tesla’s stock price in the coming quarters.

Apart from just selling cars, Tesla’s stock price, in the long run, may depend on its ability to generate money. For Tesla, the biggest revenue-generating method is the Full Self-Driving (FSD) software.

Will Massive Expansion Strengthen TSLA Stock?

Tesla has vastly expanded its manufacturing capabilities. Musk eventually wants to build 20 million electric vehicles annually over the next decade. Musk is now on a mission to rapidly expand its manufacturing capabilities by doubling the current production that nay other auto-making giants.

In Germany, Tesla will have to go against its German rivals, Volkswagen Group (VWAGY), BMW (BMWYY), and the Mercedes-Benz division of Daimler AG (DDAIF). With some Chinse rivals, Nio (NIO) Xpeng (XPEV), and Li Auto (LI), Tesla had to go head with General Motors (GM) and Ford Motor (F).

Conclusion

Quarterly, Tesla is reaching amazing revenue and growth that is benefiting shareholders. Tesla’s valuation is growing by leaps and bounds which cannot be ignored by investors. The company reported revenue of $31.5 billion in 2020, with a current market capitalization of approximately $800 billion.

Make sure to check the market condition and technical assessment before coming up with any decision. In addition, Tesla is no longer the only electric vehicle company in the market, competitors could stifle Tesla’s position, so investors need to be prepared for that.

The truth which can’t be ignored, Tesla worth trillion-dollar as an EV which is hard for its rivals to dispute. The safe advice for investors would be to add Tesla shares to the diversified portfolio.

Tesla has become the largest car company in the world and ruling it. It’s a bad call for the company to bet against Musk if things aren’t likely to change and continue to go in Tesla’s favor.

Nikita Dhyani

Nikita Dhyani is a Content Writer at Ionic Digitech. A passionate content writer and has been using her content writing skills to develop various content related to financial and business-related topics. She has done BAJMC (Bachelors in media and mass communication and journalism) from Graphic Era University. Her specialties include - Content creation, Content development, Media managing, Communications skills.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.