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Pros of Buying Tesla Stock

Following Tesla’s fourth quarter earnings announcement and after-hours trading, shares plunged on news that Tesla beat revenue estimates but missed on earnings.
California-based electric car manufacturer Palo Alto and clean energy firm specializes on the development, production and sale of fully-electric vehicles (EVs). This includes vehicle service centers as well as supercharger stations. It also offers cars with ever-improving self -driving capabilities and solar energy generation.

TSLA stock shares increased nearly 700% between 2020 and 2021. But investors might be wondering if it is a good time to buy TSLA stock, after this large run-up but then a missed earnings. Before you make any decision, think about the pros & cons.

Tesla at a glance
Pros of purchasing
Cons of buying.
Bottom line: Should Tesla stock really be purchased?

Tesla at the Glance

Tesla went public in 2010. They offered 13.3million shares for $17 per unit. Shares trade at over $830 per share as of this writing

While that is a great return on investment, it has been a turbulent road to get here. This includes missed manufacturing deadlines, comments from CEO Elon Musk, and a constant stream of reputable traders, who have denounced the company’s valuations and recommended shorting stock.

Tesla is the world’s most valuable automaker with a market value of more than $800 billion. This includes Toyota Motor Corp. TM and Honda Motor Co. (HMC). Tesla remains the dominant name in America, despite all the companies following its lead and producing their own low-emission and electric vehicles.

Although a nearly 700% increase on share price is enough for most businesses, Tesla’s inclusion as a S&P 500 company on Dec. 21 was the highlight. It was a long journey for Tesla. But the S&P Dow Jones Indices kept Tesla from its shareholders even after it reported the four consecutive quarters profitable.

How does Tesla compare to the S&P 500 after its first earnings update?

The company’s fourth quarter earnings were announced after the bell rang on Jan. 27. Mixed results were reported. Total revenue rose 46% year-over year to $10.74billion. Earnings per shared of 24cs were an 118% improvement over the prior year. Adjusted for one-time expenses, Tesla earned 80cs per share. This was still below what analysts expected at $1.03 per Share, but shareholders should still be pleased to know that this was Tesla’s sixth straight quarterly profit.

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Pros and cons of Tesla Stock

Tesla’s most recent earnings reports highlighted the record-breaking production and delivery numbers. Tesla produced 179.757 units in its fourth quarter. This was a remarkable 71% increase over last year’s quarter and much more than the 145.036 vehicles Tesla constructed in the third. Tesla delivered 180,667 vehicles to a brand-new home, a 61% increase in deliveries year-over.

Tesla had an ambitious goal to deliver 500,000 cars by the end. Despite production line disruptions caused in part by the pandemic, Tesla was still able to deliver 499.647 vehicles during 2020. Tesla’s management team hopes to improve upon that and promises 50% average annual growth in delivery over the next year.

So where are the new cars going to come in?

Tesla’s Fremont, California plant continues to expand its production. Tesla upgraded the factory in the last few week to be able produce the Model S/X and Model X. The Model 3 is currently manufactured at the Gigafactory Shanghai. Model Y production started in 2020, and will continue to grow in the future.

Tesla stated in its most recent earnings report, that the factory constructions in Berlin, Austin, Texas, and Berlin continue. Machines have been moved to Berlin. The Tesla Semi factory in Austin will serve as the main manufacturing site for the Tesla Cybertruck and Tesla Semi, which are scheduled for release in 2021-2022.

Another indicator of better operations is free cash flow. It was positive for the 2nd consecutive year. Tesla achieved a record $1.9billion in cash flow during the fourth-quarter, surpassing the $1.08billion collected in 2019. This was more than twice the free cash flow of $2.79billion in 2020.

The combination of increased production and better financials makes for a powerful combination. Tesla’s performance is impressive, and the macro trends appear to be in favor of the company at the moment.

Bullish investors believe fully autonomous vehicles will be a big hit long-term. Many companies are striving to achieve that goal in their own ways, but Tesla’s lead remains difficult to overcome. Tesla vehicles are virtually self-driving because of the advances in GPS, radar, camera and radar technology. This opens up new avenues of growth. Musk discussed self-driving Teslas in the earnings call as robotaxis. That would be an amazing, futuristic idea from anyone. Musk and Tesla see it as a distinct possibility.

Tesla is now more open to the possibilities created by President Joe Biden’s November win and Democratic control in Congress. Tax credits for manufacturers and consumers will go to companies that promote green and emission-free technology. Although the rewards have yet to be realized, President Biden’s ambitious plans to fight climate change point to plenty of future opportunities.

Cons of purchasing Tesla Stock

Tesla’s greatest asset also happens to be its biggest threat: Elon Tesla.

Hesitant investors can cite numerous tweets containing problematic language from the CEO of the company. Musk’s August 2018 tweet that he was contemplating privatizing Tesla at $420 was perhaps the most famous.

After the incident, Musk was made to resign his office as chairman of its board of directors in settlement of his suit against U.S. Securities and Exchange Commission. Musk, unafraid, took billions off Tesla’s market capitalization earlier last year.

Tesla wouldn’t be worth as many as it is today without Musk. But Musk’s huge status signals the key man risk to the stock price and the company. Tesla shares would suffer if Musk left the company to pursue his work at SpaceX. Or he was fired for his actions. Tesla shareholders may be worse off if however he remains.

Tesla continues to face larger problems worldwide: namely that it is no longer the only electric vehicle manufacturer.

Electric vehicles, autonomous cars, cross-country charging stations, and electric vehicles – Tesla was once the only automaker to proudly carry these concepts. Today, every major automaker has set their sights on becoming one of the top EV companies on the planet.

The U.S. has seen companies such as Ford invest heavily in startups such Rivian while GM is launching a stunning 30 new EVs. Many of Tesla’s bull cases hinge on China. EV manufacturers Nio(NIO), Li Auto, LI and XPeng XPEV are threatening the company’s market share.

Tesla may be able to grow its share in the U.S. EV marketplace to around 80% by 2020. But it should also note that Tesla struggles to sell more EVs abroad. China’s EV markets are so competitive that the company has reduced prices numerous times in 2020. Tesla’s Chinese EVs are not being sold in the monthly registers. In fact, until the Berlin Gigafactory can be completed, they will continue to export EVs from China to European markets.

The Bottom Line: Should Tesla Stock be Purchased?

The company’s quarterly success seems to be easing the way for shareholders. However, Tesla’s extraordinary valuation multiples must not be overlooked by investors. Although the company had $31.5 billion in total revenues for 2020, its market cap currently stands at nearly $800 billion.

Tesla has grown to be the largest automobile company in the world, and it is sitting comfortably at the top. If things go Tesla’s way, it isn’t likely to change soon. History has shown that Musk’s defeats are not uncommon.