The American company Tesla Motors (Palo Alto, California) was founded as a startup in July 2003 by M. Eberhard and M. Tarpenning, who later left the organization. Named after physicist Nikola Tesla. Products: electric vehicles, autonomous (unmanned) vehicles, energy storage solutions. NASDAQ ticker: TSLA.
Revenue structure:
- Cars - 94%
- Solar energy equipment - 4%
- Sale of quotas for greenhouse gas emissions - 2%
At the moment, the company is the largest automaker in the world in terms of capitalization: after the share price exceeded $ 1,400 in 2020, it overtook its last rival in this parameter, the Toyota concern.
The role of personality
The general director, ideological inspirer and "face" of the company is Elon Reeve Musk (born on 28.06.1971). Unlike most executives of other car companies, Musk is a media person, open to communication with the public and capable of extravagant actions and statements that immediately become the reason for publications in the media. The result of this image is Musk's impressive fame. And fame is one of the incentives for investor confidence.
However, at the present time this trust is based on the media character of the character by no means primarily. The company actively produces news feeds not only with loud fantastic statements of the "first person", but thanks to achievements and real facts.
Musk has a solid background under his belt that can tell investors a lot. Its main milestones:
- creation of the first online payment system PayPal
- creation of the first private space company SpaceX (on May 30, 2020, the first manned launch of a spacecraft was carried out, which is the company's own development, which for the first time demonstrated the possibility of automatically returning a separated rocket stage to the cosmodrome)
- creation of several, to varying degrees, successful diversified companies (artificial intelligence, neurointerfaces, solar energy, construction).
- the transformation of the Tesla startup into the world's most famous manufacturer of electric and self-driving cars.
These achievements have motivated investors for many years to tolerate the company's chronic unprofitableness.
What did the growth of Tesla shares depend on in 2019-2020?
All significant achievements of the Musk companies were accompanied by the growth of Tesla shares. So, after the "drawdown" in the summer of 2019, caused by the loss of Tesla that exceeded forecasts in the second quarter, the share price rose sharply from $ 253 to $ 315 at the end of October 2019 and went further into growth due to the company's first profit. In November of the same year, the Tesla Cybertruck, the company's passenger truck with a payload of approximately 14 thousand pounds (6,350 kg), was presented, which interested the vast US farming community. The December rise was associated with the launch of the Gigafactory 3 plant in Shanghai (investors were impressed not only by the launch itself and the start of production of the Model Y crossover, but also by the time that elapsed from the laying to the launch of Gigafactory 3 - less than 10 months). In general, it became clearthat after a decade of unfulfilled promises and losses, the company entered a phase of rapid growth. From October 23, 2019 to February 3, 2020, Tesla shares surged over 300% to reach $ 780. Soon they rose in price by another 13.7% - up to $ 887.06.
In February-March 2020, as global markets crashed due to the coronavirus pandemic, stocks headed for the Valley of Death (despite the March launch of the Model Y sports utility vehicle), losing its gain to early January levels. In April they began to rise in value again, having experienced an explosive rise in late May - early June. This was largely due not only to lower prices for Model 3, Model X and Model S in order to maintain momentum in sales, but also to the success of Musk's space program: on May 30, SpaceX successfully launched the Crew Dragon spacecraft. The launch marked the beginning of the era of private manned space exploration * and the resumption of the US manned space flight program after a nine-year hiatus. For investors, this was a clear signal: “If this guy did it with a rocket,then it will work with an unmanned electric car, too.
Bloomberg linked the record price hike in June 2020 to the growing demand for the budget Tesla Model 3 electric car in China amid the lifting of quarantine measures. In July - with the continuation of the May program to stimulate demand (price reduction for the Model Y sports utility vehicle) and expectation of news on the improvement of batteries.
* With the launch, Musk bypassed Richard Branson's Virgin Galactic, which claimed to be the first private space firm, but never launched a single launch. Virgin Galactic will take on the role of intermediary between SpaceX and NASA in the preparation of tourist flights to the ISS, according to The Verge on 22/06/20202.
Unjustified growth?
Thus, since the beginning of 2020, Tesla's share price has grown fivefold. According to a number of analysts, the rapid growth in the value of Tesla looks unnatural against the background of its relatively small number of tangible assets and the current state of the electric vehicle market. So, in 2019, sales of the company's cars amounted to less than 4% of sales of Volkswagen, the global leader in this indicator. In addition, the company has only 4 factories (the fifth is being built in Berlin, the sixth is planned in Texas), and the Toyota motor concern has 50 factories. Morgan Stanley analyst Adam Jonas notes: “It might be worth reminding investors that battery-powered vehicles account for no more than 2% of global sales. In other words, approximately 98% of the world's cars are still powered by internal combustion engines. ”He gave Tesla an Underweight rating and a target price of $ 360 per share.
Belief in a dream
In fact, investors are now ready to pay for a company 30 times more than it is worth. In mid-July 2020, when Tesla's share price was $ 1,500, Alexander Potter, an analyst at the American investment bank Piper Sandler, indicated in a corporate review that Tesla shares could soon increase the value to $ 2,322 per share. To this, Elon Musk left the comment “Wow” under review on Piper Sandler's Twitter.
“In our view, Tesla is the most influential company in the transportation ecosystem, and this is unlikely to change in the next decade,” Potter said. It is difficult to see how competitors will be able to catch up with Tesla, he added.
Potter believes Tesla's gross margins could rise by 30% when cars with full autopilot technology become available to customers (Musk announced the approach to the creation of such technology in July). It is highly likely that by the 30s, the company will be able to sell cars at cost or even lower, but at the same time receive high operating profit, the expert said.
At the same time, the Refinitiv service, which publishes the consensus forecast for Tesla shares, compiled by a group of 33 analysts, is almost 50% below the current price. And investors are awaiting financial results for the second quarter of 2020, which Tesla will publish in July.
The four factors of leadership
There are four factors that strongly support the belief in significantly higher price frontiers for Tesla stock:
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Tesla
Since the beginning of the year, Tesla shares have surpassed bitcoin in profitability, which until then was considered the leader in profitability among all existing assets. This fact made many remember the same rapid drop in bitcoin from its high at the end of 2017 - almost seven times. Such an active growth, coupled with the overvaluation of the company, made many investors still at the level of 800 dollars. per share to think about selling. Nowadays, indeed, many are getting rid of stocks, and stock analysts advise cautiously to refrain from buying Tesla stocks.
Consider the factors that, in addition to a long-overdue technical correction, can cause a significant pullback in quotes.
Fall of the market
The market decline caused by the economic crisis and the coronavirus pandemic may also affect Tesla shares, which are now virtually the only growth driver for the American market. But even such a leading company may not be able to withstand the impact of the global crisis.
Someone will overtake
While Tesla has been successful in developing new technologies, the end result may not be as impressive. What if the promised full autopilot technology is not implemented by the end of 2020, or super-efficient batteries are not created by Tesla but, for example, Lucid Motors? Jealous of Tesla's success include Porshe, Ford and General Motors. Promising Nicola Motor is preparing an electric truck for serial production. The head of Amazon, Jeff Bezos, is also showing interest in creating an original electric car. Volkswagen launches its own brand of electric vehicles in 2020. "It's a race," Volkswagen CEO Herbert Diess told Bloomberg at the Davos Forum. "We are confident that we will be able to keep up with Tesla, and at some point even overtake it." Research firm Wood Mackenzie predictsVolkswagen will overtake Musk by 2028.
The superiority of ill-wishers
Comparing Tesla and Toyota, we saw that, despite the difference in the dynamics of development, Toyota is many times ahead of Tesla in many respects (objectively Tesla is a small company). There are enough giants with great opportunities on the ICE market. We also cannot exclude the lobbying activities of oil magnates and the realization of the interests of political circles of entire countries (for example, Russia and the UAE). These very heterogeneous and even hostile forces may well join forces for the "final solution to the Tesla problem."
Insecurity Mask
Elon Musk himself, despite his consistency in achieving goals, did not always look reliable enough from an investor's point of view. Once he sold the PayPal payment system, so why can't it occur to him to sell Tesla too?
conclusions
The above factors can greatly affect the value of stocks both in the long term and in the short term (until the end of 2020). In any case, the company's second quarter financials due on July 22 will give short-term investors a clearer picture.
As for investors who adhere to a long-term strategy, it is better for them to wait for the correction of securities and buy them at a local minimum. Even though overbought, in our opinion, Tesla shares are far from their peak price. If the above risks are not realized (we allow the realization of at least one of them at a probability level of 10-15%) and the positive in the company's development continues, then in our opinion, the share price will reach the level of 7-10 thousand dollars. over the next 5 years.