Tesla has become the spearhead of electric vehicle (EV) production. It leads the way in volume, having manufactured 386,000 battery electric vehicles (BEV) in the first half of 2021.That’s some way ahead of the second biggest BEV producer, General Motors (GM), which produced 221,000.
Over the past 12 months, shareholders in the California-based manufacturer have enjoyed a generous return of 85%, with Tesla’s stock price rising from $441 to $817.
Currently, Tesla’s market cap sits at $797.7bn (£582.3bn), and investor success hinges on the car builder’s commitment to clean energy and core technologies, including its autopilot feature, vehicle software, energy storage, solar deployments, battery and powertrain.
In addition to Tesla’s robust sales of the Model 3, the company has announced the development of the Cybertruck, Tesla Semi articulated lorry and Roadster – although the Roadster has been delayed until next year and has yet to be allocated a designated production plant.
To date, Tesla produces and sells three fully electric vehicles: the Model S and Model 3 sedans, and the Model X sport utility vehicle.
Tesla: Where is the stock now?
Over the past year, the EV maker’s stock has reached a trading high of $900 and a low of $351. At the time of writing (14 October), shares were trading at just over $817.
For the year to date, Tesla shares are down 6.6%. Meanwhile, the S&P 500 index is up 20% and the Nasdaq Composite is up 15% for the year to date, suggesting Tesla is underperforming in the wider market, although Tesla's share price grew strongly in the final quarter of 2020 and started the year on a high.
Yet in the shorter term, the car manufacturer pleased investors with a 25% return over the past three months and 12% over the past 30 days.
What’s driving the Tesla share price?
Overall shift to sustainable energy
As consumers around the world become increasingly aware of electric vehicles and greener energy solutions, investors are placing a high premium on Tesla for its role at the forefront of sustainable technologies.
“Tesla is the acknowledged leader in EVs and recharging networks and will benefit in sales and share price as the market shifts to green energy until there are legitimate competitors with demonstrable advantages,” said Fred Aikins, chief analyst at Aikins Investment.
While there were already more than 10 million electric cars on the world’s roads in 2020, Wood Mackenzie consultancy group expects this number to rise over eight-fold by 2050, predicting 875 million electric passenger vehicles in 30 years.
However, hydrogen fuel-cell cars may yet dent EV sales, as they have a similar range to conventional petrol-powered cars and can be refuelled at suitably adapted filling stations.
According to S&P Global Market Intelligence, the Japanese government is banking on hydrogen to achieve carbon neutrality by 2050. It has set a target of 200,000 fuel-cell vehicles on the road by 2025, together with 320 hydrogen filling stations.
New product releases
Tesla’s share price is also dependent on new car models or product releases. For example, in April 2015, the company announced Tesla Powerwall – a set of high-capacity batteries that can be used for residential purposes, along with Powerpack – for commercial purposes. The stock jumped 20% between April and May 2015.
Most recently, the announcement of the first version of Cybertruck on 6 November 2019 was followed by a share price surge of 10% over the following five days.
Aikins noted that although Tesla shares have demonstrated a ‘bump’ with each new model announcement, “none of those products have hit the market by Tesla’s slated on-sale date”.
“In fact, Tesla just announced the Roadster’s intro date has been pushed into 2023, but don’t hold your breath on that either,” he told Capital.com.
“The Cybertruck is rumoured to be released next year, but no one has seen any prototypes on the roads testing, and that stage of development can take up to 18 months, so do the math,” Aikins added.
In addition to the production of greener energy solutions, such as lightweight composites on traditional vehicles to limit the use of fossil fuels, the emerging market of electric vehicles is also paving the way for self-driving cars and autonomous technologies.
As these innovations come online, industry experts anticipate autonomous driving technologies to become a significant growth driver for Tesla. Yet Aikins doesn’t expect it to happen until 2035 to 2040.
“We’ll see autonomous vehicles (AV) semi-trucks and urban shuttles first,” he said. “But AVs will require significant expansion of 5G data capability and expensive upgrades to road infrastructure, particularly in urban and suburban areas.”
Tesla’s latest earnings report
Tesla’s second-quarter earnings report showed revenue reached $12bn, up 98% from 2020, and better than the market’s $11.3bn prediction, while net GAAP profit hit $1.1bn.
Capital expenditure rose 176% to $1.5bn over the second quarter, reflecting ongoing construction of the Berlin and Texas Gigafactories, expansion at plants in Shanghai and California, and continuing investment in product development.
Tesla didn’t update longer term production or profit guidance, although it reiterated that it has sufficient liquidity to fund its product roadmap and long-term expansion plans.
While the California-based firm surpassed its quarterly expectations, stock ticked up just 1% during the next day’s trading after Tesla decided to halt the launch of its commercial Semi truck due to “limited availability of battery cells and global supply chain challenges”, the report showed.
“The group’s on course to deliver its first European Model Y this year, despite problems in the semiconductor supply chain being felt across the industry,” said Nicholas Hyett, senior equity analyst at Hargreaves Lansdown.
The Tesla report also linked the quarter’s record production to public support for EVs being at a “never-before-seen inflection point”.
According to Aikins, Tesla’s profits are partially driven by sales of EV credits to other automakers, rather than by sales of Tesla vehicles. “This is troubling because government EV credits can be cancelled at any time, making them a highly unreliable revenue stream,” Aikins added.
Tesla’s second quarter report revealed that the revenues from regulatory credits accounted for $354m of the total $10.2bn automotive revenue.
The Trump administration threatened to end EV credits but never followed through, while President Biden is trying to expand the programme to help meet the administration’s long-term EV goals. EV credits are part of the president’s new infrastructure bill.
Tesla Q3 2021 Vehicle Production & Deliveries
Throughout the third quarter, Tesla built approximately 238,000 vehicles, while delivering more than 240,000 new cars.
According to the most recent company release, final numbers could vary by up to 0.5% or more.
Meanwhile, Tesla vehicle deliveries represent only one measure of the company’s financial performance and should not be relied on as an indicator of quarterly financial results.
Production and delivery tallies for the third quarter include 8,941 new Model S/X vehicles with 9,275 new deliveries and 228,882 new Model 3/Y vehicles with 232,025 new deliveries.
Although no date was given, Tesla will announce its net income and cash flow results with its overall financial performance in the Q3 earnings report.
Tesla stock predictions
In March, ARK Invest, a US-based investment management firm, estimated Tesla stock could reach $1,400 per share by 2024 and more than double that mark in 2025 to peak at $3,000.
To determine an accurate trajectory for Tesla shares in the ARK report, the study used 34 inputs to generate 40,000 possible outcomes. The possibilities produced gave Tesla a 25% chance of reaching $1,500 per share by 2025.
Using the same data, Tesla also has a one-in-four chance of reaching $4,000 in the bull scenario, but is most likely to make $3,000. Should Tesla reach that mark, its market cap would account to $3trn.
On the other hand, according to the Tesla stock forecast from MarketBeat based on 30 analyst ratings, Tesla's average price target for the next 12 months is $614, suggesting 18% of potential downside from the current price of $755.
Most recently, Morgan Stanley reiterated the Buy rating with a price target of $900, and Jefferies Financial Group upgraded its ratings to Buy with a price target of $850. On the bearish side, UBS sees the stock falling to $725 and Sanford C Bernstein forecasts Tesla stock to crash to $300.
Note that analysts’ predictions are often wrong. You should always conduct your own research before making any investment or trading decision.
Downside risks to Tesla stock
Tesla’s high valuation metrics
Tesla’s high valuation metrics have been a point of concern to investors, with Aikins pointing out that by conventional models Tesla stock has “no bearing on reality” and there is a lot of “blue sky thinking” in the valuation of the share price.
The analyst called the company’s market cap of over $700bn “ridiculous”, while adding that shares for the EV maker are “insane” and not based on any valuation fundamentals.
“Using traditional metrics like sales, revenues, and profitability, there’s no way Tesla’s market cap should exceed the values of GM, Ford and Toyota combined,” Aikins told Capital.com.
According to the most recent quarterly report, Tesla’s price-to-earnings (PE) ratio, which measures the company’s current share price to its earnings per share, is 396.90 and the price-to-book (PB) ratio, which measures its market value to its book value, is 29.63. In comparison, Ford and General Motors, Tesla’s US car manufacturing rivals, have their PE ratio at 15 and 5 respectively.
Tesla has one plant in Fremont, CA with the capacity to build 250,000 to 300,000 vehicles annually. While construction on a new plant in Germany is under way, Tesla also has a facility in China with the same capacity as its US location.
“All told, Tesla will eventually be able to produce 750,000 to one million vehicles each year,” Aikins added.
Major automakers already have the capacity to build millions of vehicles every year. Right now, Ford builds 800,000 to 900,000 of its F-Series pickups in multiple plants.
Meanwhile, German automaker BMW presented the i Vision Circular, a car model developed on the circular economy, fully electric and built with 100% recyclable materials.
To date, nearly every major automaker has announced plans to build multiple EV models beginning in 2020 and beyond. GM and Ford are allocating billions for the development and production of multiple EV models, ranging from passenger cars to pickup trucks and SUVs.
Aikins said other EV vehicle brands are more affordable than the lowest-priced Tesla car, but “most are priced at parity with the Tesla models, while the Porsche Taycan and Audi e-tron GT are priced above the Tesla Model S”.
“Given the EV market is currently ~2% of the total US market and new competitors are entering the sector every day, it’s inevitable that Tesla would lose some share, even as the overall EV market grows,” he said.
Meanwhile, Wall Street has not been affected by the addition of Tesla’s EV competitors. Traders view Tesla as being very different from ‘legacy’ automakers, and don’t value them the same.
“While Tesla maintains advantages in range, recharge time and battery management, the other manufacturers are gaining ground and the infrastructure advantage will diminish over time as EV charging infrastructure ramps up,” Aikins told Capital.com.
According to the analyst, Tesla doesn’t have enough leverage to maintain a dominant share of the EV market and has already lost 10 points of share this year alone. “The real test will be from 2022 to 2023,” Aikins added.
As established automakers take aim at Tesla and the EV market, startups are also getting into the game to challenge for market share. Rivian, a US electric automaker headquartered in California, has filed confidentially for an initial public offering (IPO), seeking a valuation of more than $70bn. The company is aiming at markets Tesla has yet to enter, including large pickups and commercial delivery vehicles.
Meanwhile, Rivian’s entry into the EV market is further cemented by a $440m direct investment from Amazon’s Climate Fund after agreeing to supply 100,000 electric delivery vans by 2030, with at least 10,000 due on the roads by the end of next year.
Rivian is also producing a sport utility vehicle and pickup truck. The young automaker's first vehicle, a $73,000 pickup, will begin shipping this month, and a second model, a $75,500 seven-seat SUV, is predicted for release next year.
To date, Tesla has not put an electric commercial vehicle on the road as the company’s semi and Cybertruck have repeatedly experienced delays. Volume production of the model is not expected until next year as Elon Musk and other Tesla executives warned it presented many manufacturing challenges.
There is also a downturn in the production of Tesla’s high-end Model S and Model X vehicles. While listing a capacity of 100,000 units per year in the Fremont, California factory, Tesla built only 2,340 of the units in the first half of the year.
Chip shortages: A double-edged sword
As the auto industry becomes ever-reliant on the use of sophisticated hardware, the Covid-19 pandemic and subsequent outbreak of the more infectious Delta variant have stalled auto supply production and delivery around the globe, leading to mass shortages of sophisticated microchips and other technical hardware.
“The pandemic put a major crimp in the supply chain, either by forcing chip plants to close due to outbreaks, or by chip manufacturers closing plants as auto production collapsed,” Aikins said.
The global chip shortage extends beyond sophisticated chips and into microcontrollers as construction continues at Tesla’s Berlin and Texas gigafactories.
Additionally, the current sale of gas (petrol)-powered vehicles suggests automakers are pulling back on spending, allowing the EV sector, mainly Tesla, to gobble up supply.
Despite the chip shortage, Tesla exceeded $1bn in sales over the second quarter of 2021 for the first time in the company’s history.
Tesla: reasons to buy
A decision to buy Tesla stock must be based on your own analysis and evaluation. You should consider the company’s stock price and fundamentals. Here are some reasons that may support the decision to buy Tesla stock:
Strong first-mover advantage as the industry transitions to a non fossil-fuel future
Stellar stock performance in the last few years, most valuable carmaker by market cap
Shift towards sustainability and green energy provides beneficial environment for EVs
If Tesla delivers the self-driving car project successfully, there is potential for further growth
Tesla: reasons to sell
Again, any decision to sell Tesla stock must be based on your own analysis and evaluation. You should consider the company’s stock price and fundamentals. Here are some reasons that may support the decision to sell a Tesla stock:
Valuation metrics suggest the stock may be overvalued
Growing competition in the EV market with large automakers entering the scene to challenge Tesla
Some of Tesla’s profits are coming from EV credits rather than sales of its cars
Production challenges could be a weighting on the stock
Whether you should buy or sell is your decision. Always remember that your decision to trade should depend on your attitude to risk, your expertise in this market, the spread of your investment portfolio and how comfortable you feel about losing money.
Who owns Tesla stock?
According to Simply Wall Street, 44% of Tesla stock is owned by institutions, with a further 37% belonging to the general public and 19% to individual insiders. Tesla co-founder Elon Musk owns up to 17.22% of shares, followed by asset manager firms Vanguard at 5.95%, Capital Research at 3.86%, BlackRock at 5.1% and State Street at 3.01%,
Tesla stock: historical price movement
Tesla floated on Nasdaq in June 2010, at an initial price of $17 per share. Since then, the stock has been a real success story, accelerating rapidly to its current price of around $755, with one stock split at 5:1 in August 2020.
“Shares for Tesla have become a benchmark like the iPhone in the cellular industry because of the all-around user experience the vehicles provide,” said Vinod Jain, senior analyst at Aite-Novarica Group.
The real bull run for Tesla started after the pandemic, with the stock jumping 50% in April 2020. Next month Tesla shares delivered eye-popping returns, soaring 74% in August 2020. Between April and September 2020, the stock rose 376%.
Yet after reaching its record high of $900.40 in January, the stock lost 14.9% of its value in February. Since May it has grown strongly.
According to the data from MarketBeat, the average price target for Tesla stock based on 31 analysts is $623, suggesting 31% of potential downside from the current price of $817.
Note that analyst predictions are often wrong. You should always conduct your own research before making any investment or trading decision.
Tesla's high valuation metrics have been a point of concern to some investors. According to the most recent quarterly reports, its price to earnings (PE) ratio stands at 424.1. In comparison, Ford and General Motors, Tesla’s car manufacturing rivals, have their PE ratio at 18.3 and 6.7 respectively, suggesting Tesla stock may be overvalued.
In March, ARK Invest, a US-based investment management firm, estimated shares for Tesla could reach $1,400 per share by 2024 and more than double that mark in 2025 to peak at $3,000. Yet other brokerages seem to be more bearish. According to the data from MarketBeat, the average price target for Tesla stock based on 31 analysts is $623, suggesting 31% of potential downside from the current price of $817.
Note that analyst predictions are often wrong. You should always conduct your own research before making any investment or trading decision.