Tesla: To buy or not to buy?
Is Tesla’s volatile stock price set to thrill or disappoint investors?
Last week saw Tesla (TSLA) shareholders rubbing their hands together in delight, as the long-undervalued stock posted a surprise profit of $342m (£265m, €307m) in the third quarter. Despite Wall Street gloomily forecasting net losses of $257m, the share price rocketed back up above the $300 level and put Tesla back in profit for the first time since the second half of 2018.
Tesla share price history
The timing was particularly poignant as it marked almost nine years to the day since Tesla opened its manufacturing plant in Fremont, California. Those who can remember engineers Martin Eberhard and Marc Tarpenning launching Tesla Motors in 2003 will recall that it was initiated largely in response to General Motors’ decision to scrap its own electric vehicle, the EV1. Some argued it was a brave move; up until that point electric cars were boxy, ugly and could barely run for 100 miles before needing to be charged. Who wanted them?
Tesla’s vision was to target affluent buyers with high-end vehicles, before moving on to more affordable cars in the mass market.
The aspirational Roadster was launched in 2008; not only was the two-door sports car based on the Lotus Elise chassis but it could glide quickly and silently for up to 245 miles on a single charge. Suddenly everyone from actor George Clooney to eBay president Jeff Skoll wanted one. Yes, at an eye watering $110,000 you needed to be a movie star to afford one and yes, it took 14 hours to charge the limited life battery that would cost thousands to replace. But this was a ground-breaking vehicle that made the automotive industry sit up and take notice.
Tesla has since offered the Model S saloon, Model X SUV and more affordable Model 3 hatchback, with seven-seater Model Y to be launched in 2020. The company also produces solar roof tiles as well as solar energy storage devices.
Tesla also prides itself on its safety; all vehicles come with emergency braking, collision warning as well as blind-spot monitoring.
Plus, however you feel about your car being able to drive itself, all Teslas have the hardware required for self-driving in the future. Model Y will come with full “self-driving” capability, (pending regulatory approval) as well as the somewhat alarming ability for the car to come and find you in a car park.
However, Tesla hasn’t been without its problems. Not only has it been plagued by production issues and unreliability but the cars themselves have been known to catch fire in the event of a crash, seemingly due to problems with batteries. A man was also killed when his Tesla hit a truck towing a tractor while in “autopilot mode” seemingly because the car’s sensors misidentified the white tractor as sky.
Elon Musk – Asset or liability?
Arguably a large factor in Tesla’s success and problems is its charismatic, maverick South African chief executive Elon Musk. There’s no denying Musk has proved himself to be an exceptional visionary and CEO in the past and he certainly knows how to get Tesla in the headlines, dominating world news when he launched a Tesla Roadster 2008 into space atop his own SpaceX rocket, for example.
But some of his erratic actions and unsubstantiated tweets via his Twitter account have disturbed shareholders and landed him in a lot of trouble.
Not only did he build a totally unusable “submarine” for use in the rescue of the Thai schoolboys trapped in a cave that could never fit in the tight passages, but he bizarrely tweeted that one of the rescuers who pointed it out was a “pedo guy”, prompting a lawsuit.
What’s more, another bizarre tweet in August stating, “Am considering taking Tesla private at $420. Funding secured” did initially drive the share price upwards, but when he revealed the funding wasn’t actually secured it prompted several shareholder lawsuits as well as a whopping US$20m fine for Tesla by the SEC and forced Musk to stand down as chairman.
Tesla stock price analysis
Investors with shares in Tesla have had to get used to a wild ride; the Tesla share price has been volatile to say the least with some of the largest swings over short periods of time. Indeed, some of Tesla’s early investors have enjoyed huge surges in price. While these swings would be odd in the normal, flat share-price world of building and selling cars, things are different in the relatively new area of electric-cars, a world in which Tesla is undoubtedly leading the pack.
Tesla stock price prediction
Tesla has certainly been regarded as having been undervalued for a long time. Morgan Stanley lead auto analyst Adam Jonas commented in June that he believed the company to be “fundamentally overvalued,” while being “strategically undervalued”. Bearing in mind the company isn’t sure whether it has sustainable demand for its vehicles, Jonas believes investors bid the company up too high.
On the other hand, the entire automotive industry is now looking at electrification, certainly driven in part because of numerous governments’ regulations requiring higher fuel economy and lower emissions. Commuters in central London, for example, can avoid paying £11.50 ($16) congestion charge per weekday if they drive an electric vehicle. This global market could be worth trillions, meaning that investors who have real belief in the future of electric vehicles should really be investing now in Tesla, the only fully electric premium carmaker out there.
Jonas also mentioned that he believed Tesla’s autonomous driving technology, solar energy products, sales of electric batteries to other carmakers and infrastructure of charging stations have all been underappreciated by investors, commenting that the self-driving business alone is estimated to be worth $8.5bn.
Indeed, Musk has also described a future with “Robotaxis,” in which Tesla owners could connect their cars to a network that operates them remotely, which could share its revenue with the company via riders having to use a Tesla app to use the service. It may sound outlandish now but could definitely be an interesting prospect in the future.
What does the future hold for Tesla?
So, should we buy Tesla shares? Looking at the company’s future plans it’s certainly keen to expand its global market and has its heart set on the world’s largest: China.
The company has revealed to investors that its first factory outside the US, its new Gigafactory in Shanghai, has started trial production ahead of schedule and would be building “full vehicles, from body to paint to general assembly”. Tesla has received significant support from the Chinese government to make this happen, particularly as it’s the first foreign carmaker to open a factory in China without a Chinese partner; a remarkable achievement that has sent the share price soaring.
It certainly won’t be easy. With the company hoping to produce 1,000 cars a week in the Chinese plant, there are high expectations; what’s more the Chinese-made vehicles will need to be perfect if they’re to maintain their trust with consumers.
But there’s no doubt that the future for Tesla could be looking very bright indeed.