After surpassing a $500 billion market cap, Tesla has had a good run of it in 2020. Is Tesla past its peak or still a good investment?
Tesla (NASDAQ: TSLA) is on a bit of a roll at the minute. It recently surpassed a $500 billion market cap, as well as being added to the S&P 500, a milestone many investors had anticipated for quite some time. All this has made it the sixth-largest U.S. company and Elon Musk the second-richest man in the world.
The question on Wall Street right now is: has Tesla run its race or is there more
gas left in the tank charge left in the battery? 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 600% year-to-date (YTD). In its latest earnings report, Tesla posted its fifth-straight quarter of profitability, generating $1.4 billion in free cash flow. Its total revenue grew by 39%, and it posted record numbers in deliveries, profitability, and free cash flow. 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.
The bear case for Tesla
Tesla’s own list of risks for the future highlights how dependent the company is upon the production of Model 3 and Model Y for sustained growth. With the maintained uncertainty around many sectors of unemployment, plus the fact that remote-working looks here to stay, Tesla could experience setbacks in both the number of orders and the production of its cars.
Tesla’s reliance on selling regulatory credits to other car manufacturers is another point of concern. 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.
Lastly, competition in the electric vehicle sector has really heated up this year, both domestically and internationally. Both GM and Ford have shifted their focus to electric in a big way, and Tesla’s international competitors have really stepped up to the plate this year, especially in China. While Tesla may rule the roost for now, could its dominant position be under threat as the world’s auto manufacturers look to the future?
So, should I buy Tesla stock?:
Investors must take into consideration both its current market cap and the increased competition in the space. Can bullish investors see Tesla as the next trillion-dollar company? Or will the new electric wave see its growth stall?
I believe that with Tesla stock, anything can happen, but as it stands it seems likely to keep on growing. 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.
- 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?
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MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.