Should I Buy Tesla Stock?
As the world’s most valuable auto company, Tesla has the attention of investors everywhere. Read to discover if investing in TSLA is right for you.
Originally published on Zinvest: zvstus.com/blog/should-i-buy-tesla-stock
Tesla Inc. is the undisputed leader of the blossoming electric vehicle (EV) industry. Advocates for the company will tout its innovative product design, ever-increasing consumer demand, and high market value. In fact, Tesla is now worth more than any auto company in the world.
If you believe in the EV industry’s potential and want to buy Tesla stock, this beginners’ guide is for you. We’ll go over how to buy Tesla, weigh the company’s pros and cons, and look at some statistics that will help you decide for yourself whether or not to invest.
Our Guide for Buying Tesla Stock
If you’ve purchased stock in the past, you can skip this tutorial. However, if you’re new to the world of investing, welcome! We will run through the steps you’ll need to take in order to invest in stock, specifically Tesla.
Tesla stock is listed as TSLA on the US-based stock exchange Nasdaq. Nasdaq stocks can be traded internationally, meaning that, as long as your country doesn’t impose trading restrictions, you can buy TSLA no matter where you are in the world.
Choose An Online Broker
As we’ve said, Tesla is listed on the stock exchange Nasdaq. However, you do not buy stock from Nasdaq directly. Instead, you buy stocks through a brokerage, a financial service provider that acts as a middleman between the stock exchange and investor. Note that not every brokerage lists TSLA, so you will need to find one that does.
Transfer Funds to Your Account
Once you’ve chosen your broker, download its app and fill out the necessary information to create an account. This typically includes your name, address, email, and a photo of your identification card.
As soon as you’ve been approved, you can transfer funds to your account. Simply enter your bank account number or debit/credit card number and enter the amount of money you’d like to transfer from your bank to your brokerage. We suggest starting light. Remember to never invest more than you can afford to lose.
Choose An Order Type
Now that funds are in your account, use your brokerage’s search function to find TSLA. Select “Buy” and input the number of shares you’d like to purchase. (To reiterate, do not invest more than you can afford to lose.)
You will typically be given the option of two order types: market orders and limit orders, both of which are explained below.
Market Orders: The quickest of the two, market orders execute your transaction at the current market price. So, if Tesla shares currently sit at $700, and you buy two shares, you will pay $1,400.
Limit Orders: A limit order lets your broker know that you are not willing to purchase the stock above a certain “limit.” For example, if Tesla shares are trading at $650, you could set a limit order of $645. If your broker is able to fill this order, it will. However, if by the end of the current trading session, the share price of TSLA still exceeds $645, your order will not be filled.
While limit orders can be used strategically, we recommend market orders if you want a guarantee that you’ll receive your stock.
Once you’ve selected your order type, just hit submit. Give your brokerage a bit of time to process your transaction, and voilà! You now own shares of the world’s most valuable auto company.
Tesla Stock Performance
Historically, Tesla stock has performed quite well. Debuting on June 29, 2010, TSLA initially traded for a mere $17 a share. As of now, shares sit a little over $680, a whopping 3900% increase from its initial public offering.
With a global pandemic in full swing, the stock market took a huge nosedive in 2020. Tesla, however, was resilient; the company saw its best year by far. Below are just some of the company’s 2020 accomplishments:
- Global sales reached an all-time high of 499,550, a roughly 36% increase from those in 2019.
- Tesla became the world’s most valuable car company, hitting a market cap of $86 billion in January.
- In August, the company announced a stock split, causing shares to increase by around 200% on a split-adjusted basis. (Note: A stock split refers to when a company splits shares of its stock into multiple new shares in an effort to increase liquidity.)
Let’s fast-forward to 2021. Tesla remains the most valuable automotive company in the world. In January, share prices reached their all-time peak of $883.09. However, things have unfortunately taken a dip since then.
At the time of writing, TSLA trades for about $680, a ~22% decrease since the January peak. And while some investors see this as worrisome, the company is adamant that it is only uphill from here. With the impending releases of new, potentially game-changing models — such as the Tesla Semi and the Cybertruck — as well as the construction of a Tesla gigafactory in Austin, Texas, there is a lot to be excited about.
Additionally, CEO Elon Musk is confident that a $25,000 model will be produced within the next few years. If this were to happen, demand for Teslas would undoubtedly increase, and with this heightened interest would come a boost in market value.
If you’re still troubled by 2021’s dip, just know this is not the first time that TSLA has seen turbulence. Below are some of the company’s most significant nosedives.
- Sept. 28, 2018: Tesla stock took a massive 13.9% hit after a controversial tweet from Musk.
- Nov. 6, 2013: At the end of a quarter that did not meet high investor expectations, the stock dropped by 14.5%.
- July 6, 2010: Soon after its initial public offering, investors became concerned about the company’s mounting losses and began selling their shares, resulting in a 16.1% dip.
Clearly, the company has had its fair share of critical situations, but it has always rebounded. Optimistic investors have no reason to think that the current dip will not rebound as well.
Financial Analysis
Now that we’ve discussed recent trends in Tesla stock, let’s get into the nitty-gritty. Why did its share price boom in 2020 and dip in the first half of 2021?
First, we should acknowledge that some of Tesla’s growth last year can be attributed to outside factors, including increasing consumer interest in electric vehicles and the company’s inclusion in the S&P 500 Index. Still, the fact that Tesla had its best year during a global pandemic is nothing short of extraordinary. So what did the company do right?
Entered the SUV Market
In early 2020, Tesla debuted the Model Y compact SUV. With sports utility vehicles comprising a large part of the US automotive market, consumers couldn’t have been more thrilled. While production of the Model Y was limited in 2020, it is likely going to explode soon, with Musk claiming, “We think Model Y will be the best-selling car or vehicle of any kind in the world and probably next year…”
Constructed the Shanghai Facility
Towards the end of 2019, Tesla began production of a gigafactory in Shanghai, China. This gigafactory has the capacity to manufacture around 200,000 Model 3s a year.
The construction of the Shanghai facility was timed perfectly: since China was so quick to control the pandemic, the country’s auto industry was also quick to bounce back. As a result, Tesla’s Chinese revenues rose 90% within the first nine months of 2020.
The Reduction of Battery Costs
One of the biggest factors driving the price of Tesla vehicles is the cost of EV batteries. If the company were able to reduce the cost of batteries, they could sell cheaper models, thereby making Tesla more accessible to the average consumer.
Well, in 2020, Tesla announced plans to do just that. In September, during its “Battery Day” event, Tesla detailed battery enhancements that will result in a 56% drop in price per kilowatt-hour and reduce production cost by 69%. The company also mentioned plans to mine its own lithium, as it currently owns rights to a lithium clay deposit in Nevada.
Now that we’ve shed some light on what Tesla did right in 2020, let’s see if we can figure out why the stock dipped in 2021.
The Bitcoin Controversy
In early May, Elon Musk — who had for a time been one of Bitcoin’s most powerful proponents — had a sudden change of heart regarding the cryptocurrency, tweeting that Tesla would no longer be accepting Bitcoin as payment. Musk cited the cryptocurrency’s energy cost as a reason for the decision. This upset many investors, especially considering that this tweet arguably tanked the value of BTC.
Tesla had purchased $1.5 billion worth of BTC in February, and some were led to believe that the company had sold its coins prior to the infamous tweet. These, however, were baseless claims, to which Musk responded, “To clarify speculation, Tesla has not sold any Bitcoin.”
Recently, Musk seemingly had yet another change of heart, tweeting, “Spoke with North American Bitcoin miners. They committed to publish current & planned renewable usage & to ask miners WW to do so. Potentially promising.” Does this signal that Tesla will once again begin accepting BTC as payment? While it’s too early to say for sure, there is reason to be optimistic.
Those Prices…
It needs to be addressed: as innovative as Tesla is, their products are not cheap by any means. This is not entirely the company’s fault, as EVs are extraordinarily expensive to produce. Still, as long as Tesla’s products remain in their current price range, they will be inaccessible to the average consumer. Things didn’t get any better in February, when the more affordable “standard range” version of the Model Y was removed from the company’s sales site, leaving only the pricier long-range and performance versions of the vehicle.
Musk claimed that the standard range SUV did not meet “the Tesla standards of excellence.”
New Competition
In February, General Motors rolled out the SUV version of its Chevrolet Bolt, priced much lower than Tesla’s Model Y. The company also announced its plans to completely transition towards emission-free cars by the year 2035.
On top of that, Ford has announced their plans to go fully electric, at least in Europe. According to CNN Business, “Ford said that by mid-2026, all of the passenger cars it sells in Europe will be either all-electric or plug-in hybrid vehicles that have both an internal combustion engine plus a battery and electric motor. The company aims for its European passenger cars to be all-electric by 2030.”
As EVs rise in popularity, so will the amount of competition Tesla has to worry about. Even Apple is looking to get into the electric car business.
Tesla vs. Industry
Since we’re on the topic of competition, how does Tesla fit into the greater EV industry? The increase in demand for Tesla products is concurrent with the rising popularity of electric vehicles. In the US alone, over 1.4 million fully EVs are currently on the road. In China, there are over 5 million. These numbers are only projected to increase.
According to this report on EVs by the United Bank of Switzerland (UBS), “Our forecast is that electric vehicles will account for 40% of global new car sales by 2030. We believe the transportation sector can be almost entirely decarbonized by 2040. Why? New technologies have breakthroughs enabling them to start providing value at a reasonable cost…”
The market for electric vehicles is still in its infancy, so things can always change. But for now, Tesla is the industry’s uncontested figurehead. According to Statista, “Tesla’s sales volume translates into a market share of about 16 percent. Volkswagen Group and the Chinese manufacturer SAIC were among the runners-up.”
And Tesla is on top for good reason; they simply create quality products. Any EV will likely feature all-wheel drive, a modern design, and durability, but one of Tesla’s biggest strengths is its fast and long-lasting charge.
Drivers can utilize the Supercharger network, which can be thought of as a “gas station” for Tesla owners. To charge above 60 kW will cost you $0.26 per minute. To charge under 60 kW, it will only cost $0.13 per minute. While the time it takes to charge your Tesla depends on the model, charging newer models takes a relatively short amount of time. The Model 3, for example, takes about an hour to charge.
Plus, a single charge will last Tesla models longer than that any competitor. The company’s new Model S promises 370 miles of range. Meanwhile, the majority of competitors’ vehicles do not top 200.
The Self-Driving Race
Once thought to be a thing of science fiction, autonomous driving is currently offered by a multitude of manufacturers, and Tesla is far ahead of its rivals. According to a Trefis analysis, “Tesla’s total autonomous miles logged has grown exponentially from 0.1 billion in May 2016 to an estimated 1.88 billion as of October 2019 and 3 billion in April 2020.” Compare this to Waymo, Google’s autonomous driving system that had only 20 million miles logged by January, 2020.
Tesla intends to implement a self-driving software subscription this year. Software subscriptions are high-revenue models for tech companies, and if Tesla’s is successful, it will almost certainly give the stock price a boost.
The Pros and Cons of Buying TSLA
If you’ve reached this point in the article, you may still be thinking, “So should I buy Tesla stock or not?” While we don’t wish to make that decision for you, we will summarize some of the pros and cons of buying TSLA right now.
Pros
- You are investing in a blossoming industry, and Tesla is its leader. With even traditional motor companies like GM and Ford pledging to transition solely to EVs, there is no doubt that EVs will soon overtake the automotive market. Tesla has proven time and time again to be on the cutting edge of EV trends, to the point at which it has become the most valuable auto company in the world.
- The company has exciting things on the horizon, such as further production of the Model Y and the construction of new gigafactories. Currently, the company has four more gigafactories planned, with the Austin, TX facility being close to completion. New gigafactories have historically been great for TSLA stock, the Shanghai factory being a major contributing factor to the stock’s success in 2020. Perhaps most exciting, however, is the possibility of a $25,000 Tesla model, which Musk hinted towards in 2021.
- While it’s had its share of dips, TSLA has historically been profitable. Going from $17 to $680 in a little over ten years is no easy feat. And considering all that the company has planned for the future, optimistic investors only see this price going up.
Cons
- While Elon Musk has plenty of diehard followers, many investors express concern over his so-called “Twitter fingers.” Some of his more controversial tweets have negatively impacted stock prices, and TSLA skeptics are quick to point this out.
- These skeptics also have a hard time trusting some of Musk’s optimism. For example, Musk’s insistence that the Model Y “will be the best-selling car or vehicle of any kind in the world” understandably doesn’t sit well with some investors.
- Competition is slowly becoming more intense. One reason that TSLA stock was able to rise so quickly is that, for a time, Tesla was one of few truly innovative companies within the EV sector. Now, however, more companies are following suit, some even producing similar, yet more affordable products. And while Tesla losing its place as the leader of EVs isn’t something that will happen any time soon, it’s best that investors be prepared for the possibility.
Conclusion — Should I Buy TSLA Stock?
Tesla is one of the most talked-about stocks on the market. With its recent inclusion in the S&P 500 Index, even the most pessimistic investors can no longer deny its importance. In a little over 10 years, the stock has jumped to 35x its original price, this year even reaching a peak of $883.09. This is quite the accomplishment for a company that has been around for a lot less time than its competitors.
Despite all its accomplishments, the company continues to dream big, constructing new gigafactories and increasing production. However, those looking to buy Tesla stock should be aware of the downsides. While Tesla’s technology is undeniably innovative, the cost of production is still too great to make their cars affordable to the average consumer. And while the company is working towards lowering costs of production, you can never be too skeptical as an investor.
