Tesla Stock: Buy Or Bye?

Should I Invest in Tesla Stock?

Tesla has been one of the most-followed companies in the stock market. In just over a decade, Tesla has gone from a brash, cocky upstart to an industry leader. The company's CEO, Elon Musk, has played a significant role in this transformation, with his ambitious ventures and controversial statements often making headlines.

Tesla's stock performance has been impressive, with a 96% gain from 2017 to 2019, and an astonishing 740% surge in 2020. However, in 2022, Tesla's share price plummeted by 65%, largely due to the economic uncertainty caused by high inflation and rising interest rates.

So, should you invest in Tesla stock now? Well, that's a decision you need to make based on your own research. It's important to remember that investing in Tesla means buying a portion of the company, so the success of your investment depends on their future success.

Demand for electric vehicles is rising, and with many countries planning to ban the sale of petrol-powered vehicles, this trend is likely to continue. Tesla has positioned itself well to take advantage of this growing market, solidifying its position as a market leader. They have also been able to ramp up production and turn a profit, something many other EV producers struggle with.

However, it's essential to consider that much of this information is already reflected in Tesla's current share price, and the stock market expects their success to continue. Additionally, as with any investment in the current economic climate, you should be prepared for short-term volatility.

Tesla's stock split

Tesla has split its stock twice in its history. The first instance was a five-for-one exchange on August 31, 2020, and the second was a three-for-one split on August 25, 2022.

Stock Splits Explained

Stock splits are superficial adjustments that don't change a company's market value. Instead, they reallocate that value into a different number of shares. For instance, in the case of the five-for-one exchange in 2020, each share was worth one-fifth of its pre-split value, resulting in shareholders having five times the number of shares, but the total value of those shares remained the same as before the split.

Market Impact of Stock Splits

Stock splits can influence the prevailing sentiment on a stock. Some investors interpret a stock split as a signal that the company's leadership is bullish. Additionally, splits can make stocks more attractive to a wider range of investors by lowering the share price. These factors can indirectly increase a company's value and lead to higher share prices over time.

However, in the case of Tesla's previous splits, the numbers don't show an immediate and sustained increase in stock price. In fact, the periods following both the 2020 and 2022 splits were challenging for Tesla's stock, with higher volatility compared to the Nasdaq-100 and S&P 500 indexes.

Factors Influencing Stock Splits

Leadership teams typically pursue stock splits to manage the share price and promote the liquidity and accessibility of the stock. By keeping share prices low, companies aim to improve the stock's liquidity, or how easily it can be bought and sold, and make it more accessible to a broader range of investors.

Implications of a Potential Tesla Stock Split

While there are currently no plans for a third stock split, if Tesla were to split its stock again, it could generate buzz and potentially drive share prices up in the short term. However, such gains driven by hype may not last, especially considering the volatile nature of Tesla's stock.

In the longer term, keeping the share price low through stock splits can benefit Tesla as it matures and seeks to maintain shareholder returns. However, this benefit is contingent on the company's ability to deliver acceptable returns and manage increasing competition and margin pressures.

The impact of Elon Musk's Twitter acquisition

Elon Musk's acquisition of Twitter has had a notable impact on public perceptions of Tesla and its stock price. Musk's plate was already considered fairly full before the acquisition, and his decision to also take on the role of Twitter CEO led to concerns that he may have spread himself too thin. This uncertainty caused some investors to be spooked, contributing to a decline in Tesla's share price.

The acquisition drew mixed reactions, with praise for Musk's planned reforms and vision for Twitter, particularly his calls for greater free speech. However, there were also criticisms and concerns over the potential rise in misinformation, disinformation, harassment, and hate speech on the platform. These worries were heightened by Musk's restoration of previously banned accounts and suspension of anti-fascist accounts, as well as his relaxation of Twitter's hate speech policies and removal of its COVID-19 misinformation policy.

The impact of the acquisition on Tesla was further felt when, within three days of Twitter agreeing to be acquired, Musk sold $8.5 billion worth of his Tesla shares. This sale caused Tesla's stock to sink by more than $125 billion the next market day, resulting in a loss of about $30 billion of Musk's net worth.

The acquisition also led to a reshuffling of priorities and resources, with Musk directing some of his attention and that of his companies towards realising his vision for Twitter. This included meeting with Tesla engineers to assess Twitter's codebase and discuss changes to the platform.

In addition, the acquisition had legal repercussions, with Twitter suing Musk in the Delaware Court of Chancery after he attempted to terminate the deal, citing Twitter's alleged breach of their agreement by refusing to crack down on spambot accounts. The lawsuit was eventually dropped when Musk reversed course and agreed to move forward with the acquisition. However, the back-and-forth nature of the deal and the uncertainty surrounding it likely contributed to the decline in Tesla's share price.

In conclusion, Elon Musk's acquisition of Twitter had a notable impact on Tesla, causing uncertainty among investors, leading to a decline in share price, and resulting in a reshuffling of resources and priorities for Musk and his companies. The acquisition also had legal repercussions and contributed to a more significant shift in focus for Musk, potentially impacting his ability to drive Tesla's growth and innovation in the short term.

Tesla's robotaxis

There are a variety of factors to consider when deciding whether to invest in Tesla. Firstly, it is important to note that Tesla's share price has been volatile and subject to significant fluctuations. While it has delivered impressive returns over the years, there have also been periods of decline.

One of the key considerations for investors is the company's future prospects, particularly in the context of increasing competition in the electric vehicle (EV) market. Tesla has positioned itself as a market leader, and its ability to ramp up production and turn a profit makes it a compelling investment option. However, it is crucial to remember that the stock market already expects Tesla's success, and this may be reflected in the current share price.

Now, onto Tesla's robotaxis, a concept that has been touted by CEO Elon Musk for several years. On April 5, 2024, Musk announced a "Tesla Robotaxi unveil on 8/8" on Twitter, generating much speculation. This aligns with Musk's long-held vision of a future with self-driving vehicles and dedicated robotaxis, which he believes will revolutionise transportation and make Tesla a company worth $500 billion.

While Musk's optimism about Tesla's autonomous driving technology persists, the company has faced challenges in delivering on its driverless promises. Despite previous assertions, Tesla has yet to achieve full autonomy or enable cross-country drives without human intervention. Regulatory hurdles also remain, as highlighted by NBC News, which reported that Tesla had not sought permits to test and operate robotaxis in key states like California and Nevada.

However, Tesla continues to make strides in this arena. During an earnings call in April 2024, Musk reiterated his commitment to developing artificial intelligence software to enable self-driving capabilities and turn existing cars into robotaxis. He also mentioned that the robotaxi would be called the CyberCab, and a shareholder deck featured a "preview of ride-hailing in the Tesla app."

Analysts from Wedbush and JPMorgan offered differing perspectives on the upcoming Robotaxi day. Wedbush analyst Dan Ives viewed it as a "key historical moment" for Tesla, while JPMorgan analyst Ryan Brinkman expected it to be a concept reveal with no material revenue generation for years.

Tesla's approach to autonomous driving technology relies primarily on visual perception, which may impact the reliability and safety of the system. This differs from competitors like Waymo, who use a multi-sensor fusion approach, including detailed mapping and real-time sensor data.

In conclusion, while Tesla's robotaxis remain a future prospect, the company's ability to deliver on its autonomous driving promises and navigate regulatory challenges will be crucial in determining their success. Investors considering Tesla should carefully evaluate these factors and their own risk tolerance when making investment decisions.

Tesla's competition

In the US, Tesla's main competitors include Ford, General Motors, and Nissan. Ford's Mustang Mach-E model received Car and Driver's first Electric Vehicle of the Year award in 2021, and the company is investing $22 billion through 2025 to pursue vehicle electrification. General Motors has announced $35 billion in planned EV investments through 2025 and plans to exclusively offer consumer EVs by 2035. Nissan has been offering hybrid gasoline-electric cars and pure electric vehicles like the Nissan Leaf.

Tesla's biggest competition, according to Elon Musk, comes from China. China is Tesla's second-largest market and the top market worldwide for electric vehicles, making up about two-thirds of all EV sales globally in 2022. Chinese EV makers like BYD, Nio, and XPeng are among the most competitive in the world. BYD ranked second behind Tesla in global BEV sales in 2022, with 911,141 units sold compared to Tesla's 1,313,851.

Other competitors in the EV market include Rivian Automotive, Toyota Motor Corp., and Volkswagen.

Tesla's long-term potential

Tesla has been a monster stock over much of its history, especially during its stratospheric run from mid-2019 to late 2021. The company's share price has soared in recent years, turning it into the most valuable car manufacturer in the world.

A $1,000 investment in Tesla stock at its IPO price of $17 per share in 2010 would have bought you 58 shares, which, accounting for the Tesla stock split in 2020, would have been worth more than $107,000 by the end of 2022.

Despite a recent downturn in Tesla's share price, the long-term outlook for the company remains positive. Demand for electric vehicles is rising, and with many countries planning to ban the sale of petrol-powered vehicles in the future, this trend is likely to continue.

Tesla has positioned itself as a market leader in the electric vehicle industry, and while there are many new competitors entering the market, Tesla has continued to ramp up production and turn a profit.

One of the key drivers of Tesla's long-term growth potential is its development of autonomous driving technology. Tesla's supercomputer, Dojo, is one of the most sophisticated and powerful computers on Earth, and it holds the potential to revolutionize Tesla's business and revenue streams. Dojo will help Tesla develop its full self-driving (FSD) software, which the company plans to license to other automakers.

The real game-changer for Tesla, however, may be the development of a software-as-a-service (SaaS) product. By offering Dojo as a cloud supercomputer that other companies could use to optimize their AI models, Tesla could generate significant revenue from industries beyond automotive, including manufacturing, aviation, healthcare, utilities, and security.

In addition to its focus on artificial intelligence, Tesla's vertical integration strategy and strong balance sheet also contribute to its long-term growth potential.

While there are risks and uncertainties associated with any investment, Tesla's history of innovation and its position as a market leader in the electric vehicle industry make it a compelling long-term investment opportunity.

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