With the stock market as hot as it is right now, chances are you're looking for ways to get in on the action. The Tesla stock has likely crossed your radar several times when surveying potential stocks to pick. After all, very few other big companies have had their share price explode as Tesla's has.
That being said, there are so many things to consider before buying a stock. “Should I worry about chip shortages? How much analysis into electric cars should I do? Tesla is close to its all-time high; should I still buy?”
This post will answer all of those questions and more. Before you go ahead and stock up on Tesla shares, there are a few essential things you should know, and this post will cover them.
There will be an overview of Tesla as a company, some info about the Tesla stock itself, and also a section on the pros and cons of investing in Tesla's stock.
Ready to learn everything you need to know about the Tesla stock? Let's get right into it.
Overview of Tesla
Before getting into the nitty-gritty of technical analysis for the Tesla stock, it's vital first to understand the business aspect of Tesla and what it's all about.
Founded in 2003 by entrepreneurs Martin Eberhard and Marc Tarpenning, Tesla was initially known as Tesla Motors and had one purpose: to develop an electric sports car. The founders wanted to create an energy-efficient and sustainable vehicle without losing any features in a regular gasoline car.
From the start, founder Elon Musk was a big supporter of Tesla (having donated over $30 million in its opening VC rounds). He was made chairman of Tesla in 2004 and has held a leadership position ever since.
It was always Musk's goal right from the start to make electric cars available to the masses, and over the years, Tesla has moved closer and closer to achieving that goal. Throughout the years, Tesla has grown and released multiple vehicles, including the Roadster (2007), the Model S (2012), the Model 3 (2017), and the Model Y (2020).
In 2010, Tesla had its IPO (initial public offering) and raised over $226 million. An early-stage Tesla investment brought returns over 300x the original investment. Since then, the company has grown, and today, Tesla has a market cap of over one trillion dollars.
Before getting into the info regarding Tesla's stock, it's essential to understand what all the terminology means:
- Market Capitalization: How much any given company is worth. Market Cap is found by taking the number of total shares of the stock and multiplying it by the stock price.
- PE Ratio: A measure of how “expensive” a company is. Any company's PE Ratio is ascertained by taking the total price of the stock (the market cap) and dividing it by how much Tesla makes every year (the earnings).
- Average Volume: A measure of how many shares any given stock trades. Average Volume is a good measure of how “liquid” any given stock is (aka, if you wanted to sell, how easy it would be for you to sell the stock).
- Total Return (Since Inception): A percentage showing how much you would have made if you had invested in Tesla right when it first became publicly traded.
Here's some basic information about the Tesla stock that you'll want to take note of before investing. This information is grabbed directly from the market data provided by Yahoo Finance and is current as of January 3rd, 2022:
- Market Capitalization: $1.205 trillion
- PE (price-to-earnings) Ratio: 391.83
- Average Volume: 26,579,322
- Total Return: 31,144%
When making investments, it's crucial to look at how a company compares with its competitors. Compare mutual funds with other mutual funds, energy generation companies with other energy generation companies, and electric vehicle manufacturers with other electric vehicle manufacturers.
Look at each company's stock and performance and reference it with the company you're thinking of investing in. If your company appears to be more solid and more price-efficient, then your analysis will have told you that investing in your company is a good idea.
Here are some comparable companies to Tesla that you can look at to determine whether investing in Tesla is a good idea:
- General Motors Co. (ticker: GM)
- Ford Motor Co. (ticker: F)
- Li Auto Inc. (ticker: LI)
- Nio (ticker: NIO)
- Nikola Corp. (ticker: NKLA)
- Canoo Inc. (ticker: GOEV)
Pros and Cons of Buying Tesla's Stock
Before tossing your money towards anything, it's crucial to understand the investment's advantages and disadvantages. That applies to if you're buying shares of a storage systems company or if you're buying shares of Tesla. Here are the pros and cons of buying a Tesla stock.
Pros of Tesla:
- High production and delivery – One of the biggest pros to investing in Tesla is its high number of electric vehicles that it manages to produce and deliver. In recent years, Tesla has shown its ability to ramp up production and bring in profits for investors.
- Growth – Another promising aspect of Tesla is how much growth potential it shows. Since 2020, Tesla management promised it would grow deliveries by 50% in the coming years. They have (mostly) delivered on those promises.
- Upgraded facilities – Tesla also has factories and facilities worldwide to aid in producing electric vehicles. Tesla has a giga-factory in Nevada, New York, Shanghai, Berlin, and Texas. On top of this, Tesla is constantly in the talks of investing in new factories.
- Good macro trends – Looking into the future, Tesla is definitely in an up-and-coming industry. Autonomous vehicles have grown more and more popular in recent years, and the movement is for them to be the primary mode of automobile transportation in the future. Tesla has creatively used cameras, radar, and GPS throughout the years to the point that their cars are (almost entirely) self-driving. It's an exciting avenue of growth for Tesla that will most likely afford it many different possibilities.
- A greener future – Building on the previous point, the world embraces cleaner and greener technology. Companies that focus on advancing this growth are rewarded tremendously with tax credits for themselves and their consumers (driving more consumers to buy services/products). With Tesla concentrating so much on minimizing emissions, it's primed to take advantage of this shift.
Cons of Tesla:
- Keyman risk – In 2018, Tesla CEO Elon Musk tweeted that he was “considering taking Tesla private at $420.” Later on, he tweeted, “Tesla's stock is too high IMO,” and again knocked billions of dollars off Tesla's market cap. This action forced Elon Musk to step down from chairman of the board (in his lawsuit with the Securities Exchange Commission) and consequently dropped Tesla's stock price hundreds of points. The good news is that Elon Musk is brilliant and a massive part of why Tesla has grown to be as big as it is. That said, there is also a significant key-man risk associated with him. If he were ever to step down and focus on his other endeavors (or if he were fired for his behavior), you could bet that Tesla's stock price would dive.
- Expensive – As of this writing, Tesla's current market price is over $1000 (you could buy a whole set of golf clubs with that money!), and the price-to-earnings ratio is exceptionally high compared to its competitors. This means that if you were to buy a share of Tesla, you're getting less of the earnings (on a percentage basis) than if you were to buy stock from one of its competitors.
- Competition – Speaking of competitors, increasing competition is another con to investing in Tesla stock. Just a couple of years ago, Tesla could proudly state that it was the only genuine electric vehicle manufacturer in the industry. Today, that statement is no longer valid. Companies like Ford and GM might not be there yet, but you can bet that they'll do anything they can to overthrow Musk and Tesla.
- International risk – Though Tesla is huge in the United States, a big part of Tesla's bull case involves expansion in China. Analysts view this as a con because many Chinese startups (like Nio (NIO), Li Auto (LI), and XPeng (XPEV)) threaten to eat into Tesla's market share and take away from the company's profits.
Recap: Everything You Need to Know About the Tesla Stock
With stock sales exploding and significant gains happening in the stock market every day, Wall Street analysts and common folk alike are always looking for solid stocks to invest in. Some are even wondering what stocks are in the first place?
If so, you've likely come across the Tesla stock as a potential option to invest in. This post has covered tons of information about the Tesla stock that will hopefully be helpful to you as you continue to investigate just what companies you want to back with your money.
As always, make sure to do your research before investing and learn how to make your money work for you. Though the Tesla stock could make you a millionaire, it could also leave you in ruins if you're not smart about it.
Finally, before investing in stocks, you should probably spend some time learning about the financial planning process in general and understand how stocks fit into your overall plan and portfolio!
Joe DiSanto is a fractional CFO and consultant for small businesses and high-income individuals. Throughout his career in Los Angeles, he built multi-million dollar businesses, produced critically acclaimed documentaries and an Emmy-winning TV show, invested millions in real estate, and was semi-retired at age 43. He now helps others achieve their career and wealth goals by sharing a lifetime of fiscal know-how via his website, Play Louder (https://www.playlouder.com/).