After a 5-to-1 stock split and 12 months of profitability, Tesla has had a good run of it in 2020. Is Tesla past its peak or still a good investment?
Tesla (NASDAQ: TSLA) may have had a bad start to September, but this does not reflect its overall 2020 performance. On September 7, the electric vehicle maker experienced its worst ever single day decline when shares fell 21%. This comes after Tesla was not included in the S&P 500, shocking many investors who were certain of the opposite happening.
Whilst CEO Elon Musk has made several headlines for both his personal life and his opinions regarding the general lockdown, his management of Tesla has been well-regarded overall. With the recent 5-for-1 stock split, many retail investors see it as a good buying opportunity at present. With that in mind we ask:
Is Tesla a good investment?
The bull case for Tesla
Tesla has shown remarkable growth this year. Its stock is up 435% year-to-date (YTD) and 891% for the last 12 months. In its latest earnings report, Tesla posted its fourth-straight quarter of profitability, generating $418 million in free cash flow. Its total revenue came in at just over $6 billion, up 1.3 % from Q1. Even during a pandemic, Tesla has managed to generate profit and increased growth.
Production of the exciting ‘Million Mile’ battery is in the works and should be seen by the end of 2020. This battery could revolutionise the electric car industry and indeed make certain arguments around ‘range anxiety’ in electric vehicles redundant. Additionally, by increasing the battery life the overall cost of owning a Tesla car could be reduced, making it accessible to more people.
In this regard, Tesla is a great company for innovation and for development, particularly as it continues to plough ahead with its new Gigafactory in Germany. Now, with more plans on the table for a new factory in the U.S. and then another in Asia, we can expect to see this company continuing to lead the pack in electric vehicle production for the foreseeable future.
Tesla’s stock split has now made buying shares more affordable for the everyday investor, bringing the price down from +$2000 to the $400 range zone. It is likely that this will not stay so ‘cheap’ for long and the stock price will rise again over time.
The bear case for Tesla
Tesla is currently fending off competition from its up-and-coming rival Nikola, particularly as it has teamed up with General Motors for the production of a new hydrogen fuel cell electric truck. GM motors now has an 11% stake in Nikola and the stock has risen whilst Tesla’s has dropped.
Its most recent earnings report Tesla showed a decline in automotive sales by around 4%. This could be indicative of a wider trend of car sales decline or, more likely, an attribute given to the pandemic. Indeed, Tesla’s own list of risks for the future highlight how dependent the company is upon the production of Model 3 and Model Y for sustained growth. Additionally, with the realization that our coronavirus affected workplaces are likely to remain volatile until next year, Tesla could experience setbacks in both the number of orders and the production of its cars.
Although now eligible for inclusion into the S&P 500 after its fourth consecutive quarter of profit, Tesla’s reliance on selling regulatory credits to other car manufacturers may be the reason behind its exclusion. The company’s $483 million of pre-tax profits in the first half of this year depended on $782 million from just such sales. However, Elon Musk has stated that this is only a short-term solution.
Whilst Tesla did produce another profitable quarter, it acknowledged that the reduction in staff and thus furloughed wages definitely helped in this regard. Other costs were also reduced, such as the amount spent on research and development in the second quarter which was down from $324 million to $279 million. This could potentially impact delivery times on new products and tech, such as the Million Mile battery. Only time will tell on this front, with more information expected to be given at the much-awaited shareholder meeting on the 22nd September — dubbed ‘battery day’.
So, should I buy Tesla stock?:
I believe that with Tesla stock, anything can happen, but as it stands it seems likely to keep on growing. Despite the reduction in the research and development spending this quarter, there is no doubt that Tesla will plough ahead with its innovative attitude as it continues to produce top-quality cars. So, yes, this is a good investment.
With the recent 5-for-1 stock split a buying opportunity has presented itself. Now would be the best time to invest in Tesla as its relatively low prices are not likely to stay so for very long.
- What is the cheapest Tesla?
The cheapest Tesla car you can buy is the Model 3 Standard Range at $36,200 – but this model is only available in physical stores
- Are Nikola and Tesla the same company?
No, whilst they both make vehicles, Nikola focuses on producing zero-emissions trucks and hydrogen-electric trains. Tesla focuses on electric car production as well as energy storage solutions.
- Is Tesla overvalued?
Whilst many might say so, can you really put a price on innovation and future potential?
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.