Shares fell after the company announced its fourth-quarter earnings. This was due to the fact that Tesla exceeded revenue expectations, but missed out on earnings.
California-based electric vehicle maker Palo Alto (clean energy company) specializes in developing, manufacturing, and selling fully electric cars (EVs). It also provides vehicle service centers and supercharger stations for vehicles and cars with ever improving self-driving abilities.
TSLA shares grew by nearly 700% in 2020. Many investors are wondering if now is the right time to invest in TSLA stock after this huge run-up and subsequent earnings misses. Before making a decision, weigh the pros and con’s.
Tesla at a glance
There are pros and cons to buying.
There are cons to buying.
Let’s get to the bottom of it: Should you purchase Tesla stock?
Tesla at a glance
Tesla went public with 13.3 million shares, at $17 per share. As of today, shares trade for $830 per share.
While this is an impressive return on investment, it has been difficult to reach this point. It was marked by missed manufacturing deadlines and controversial comments from Elon Musk. Also, there have been steady streams of traders who denounce the company’s valuation and recommend selling the stock.
Tesla has a market cap of approximately $800 billion and is the largest global automaker in terms of value. This makes it more valuable than Toyota Motor Corp., Honda Motor Co. (HMC), and General Motors Co. Although all these companies have taken Tesla’s advice and started their own electric, low-emission vehicles, Tesla is still the dominant brand in the U.S.
While a share price increase of nearly 700% may be sufficient for most companies in 2020, Tesla’s inclusion into the S&P 500 on December 21 was the highlight. It was a long wait for Tesla. And the S&P Dow Jones Indices kept Tesla (and its shareholders) waiting until the company reported the four consecutive quarters that it had achieved profitability to be eligible for the index.
Where does Tesla currently stand after the release of its first earnings as a member S&P 500?
On Jan. 27, after the bell, the company reported fourth-quarter earnings. However, there were mixed results. Revenue grew 46% to approximately $10.74 Billion year-over-year, and earnings per share of 24c represented an 118% rise over the previous year. However when adjusted for one-time items Tesla earned only 80 cents per sen. While this was still less than the $1.03 per shares expected by analysts investors should still be satisfied to note that Tesla earned its sixth straight quarterly profit.
There are pros to buying Tesla stock
A record number of production and delivery was one of Tesla’s biggest highlights in its latest earnings report. Tesla produced 179.757 cars in its fourth quarter. That’s a 71% increase on the same quarter last, and far more than the 145.036 cars it made in the third quarter. Tesla delivered 180.667 vehicles, an increase of 61% over the previous year, and found a new home for 180.667.
Tesla had set ambitious goals to deliver 500,000 vehicles before the end of 2019. Despite experiencing production disruptions due to pandemics, the company was able to deliver 499 647 vehicles by 2020. Tesla’s management team is optimistic that it can increase its delivery rates by 50% annually over the next five years.
So, where is all that new car going to come?
Tesla’s Fremont plant in California is continuing to increase production. Tesla has upgraded the factory over the past few weeks to make it possible to produce the Model S, Model X and Model 3 as well. The Model 3 is produced by the Gigafactory Shanghai. Model Y production began late 2020. It will increase in the coming year.
Tesla’s newest facilities were mentioned in its latest earnings report. It noted that construction in Berlin and Austin continues and that machinery has already been moved into Berlin. The Tesla Semi will be manufactured in Austin and the Tesla Cybertruck in Austin. These products are due to be released in 2021/2022.
Another indicator that operations are improving was the free cash flow which remained positive for a second year. Tesla crossed the finish line with $2.79 billion of free cash flow in 2020. This is more than twice the $1.08 million that it earned in 2019. Tesla also received a record $1.9billion in free cashflow during the fourth quarter.
This combination of improving financials and more vehicles on the assembly line is impressive. The company’s execution is excellent, but macro trends seem to favor Tesla at the moment.
Long-term, bullish investors see fully autonomous cars as a possibility. There are many companies that have made progress towards this end, but Tesla is the clear leader. Tesla vehicles are now practically self-driving thanks to Tesla’s extensive use of GPS, radar, cameras and GPS. This opens up other avenues for growth: Musk talked about self-driving Teslas as robotaxis during the earnings conference. It’s an idea that is futuristic, and would seem amazing to anyone. But it’s possible for Musk, Tesla, and others.
The combination of President Joe Biden’s win in November and Democratic control over Congress means that Tesla has greater potential. Businesses that concentrate on green and emission-free technology are likely to reap tax credits for both manufacturers and consumers. These rewards are yet to materialize, but President Biden’s ambitious plans in combating climate change point towards many future opportunities for Tesla.
For Tesla stock prediction 2030, visit StockForecast…
Cons of buying Tesla Stock
Tesla’s greatest asset and its biggest threat is Elon Musk.
Hesitant investors will refer to the tweets of CEO Musk’s problematic rhetoric. Musk posted in August 2018 that he was “considering taking Tesla public at $420.”
Following this incident, Musk had to resign as chairman of board in settlement with U.S. Securities and Exchange Commission. Musk was unfazed and he single-handedly wiped billions from Tesla’s market valuation earlier last year. He tweeted, “Tesla Stock Price is too High imo.”
Tesla would be worth less if Musk was not around. However, Musk’s enormous status is a sign of the key-man risks associated with the company and its stock prices. Tesla shares could suffer if Musk leaves the company to work on SpaceX, or if he is simply fired for his behavior. But, perhaps, Tesla shareholders would be better off if he stays.
Tesla has other problems, however: It is not the only one in the electric car game.
Today every automaker around the globe is determined to become the largest and best electric vehicle company.
American companies like Ford (F) have made significant investments in startups like Rivian. Meanwhile, GM has plans to roll out 30 new EVs before 2025. The bull case for Tesla is heavily based on China, where EV makers Nio (NIO), Li Auto(LI) and XPeng [XPEV] are gaining market share.
While Tesla may have been able to increase its market share in the U.S. EV sector to approximately 80% in 2020 it should be noted that Tesla has had difficulty selling EVs to other markets. In 2020, Tesla has cut its prices multiple times due to China’s EV-market competition. Tesla’s Chinese made vehicles have seen monthly registrations remain well below their production capacity. Until the Berlin Gigafactory opens, the company will export Chinese-made EVs to European countries.
Bottom line: Should You Purchase Tesla Stock?
As the company achieves quarterly profitability, shareholders seem to be enjoying a smoother ride. Investors can’t ignore Tesla’s outrageous valuation multiples. Even though Tesla reported $31.5 Billion in total revenue for 2020 it is still worth nearly $800 Billion.
Tesla is the world’s biggest car company and currently sits comfortably at the top. If things continue to go Tesla’s direction, which is not likely to change anytime soon, then betting against Musk tends be a bad idea.