Tesla’s Electrifying Growth
On Feb. 3, Tesla’s stock jumped 20%, closing at a then-record $780 per share. However, the following day, the stock was closed at $887 a share – a 12% increase from their previous record-setting price. These stock increases followed the January announcement that Tesla had become the most valuable U.S. car producer of all-time – trailing only Toyota globally. Despite this recent success, Tesla has faced many roadblocks throughout its history, so the sudden change in fortune came as a shock to many analysts. Why the sudden increase in optimism surrounding Tesla?
Tesla was founded in 2003 by Martin Eberhard and Marc Tarpenning in San Carlos, California. A year later Elon Musk became a primary investor, pouring $30 million into the company and securing a position as the chairman of the Board of Directors. After launching their pilot car, the Roadster, Tesla overhauled their staff and prepared to go public. In 2010 Tesla IPOed at $17 a share ($226 million market capitalization) despite being very unprofitable. From 2017 to 2019, Tesla experienced a series of tumultuous events that caused its stock price to drop.
Internally, CEO Elon Musk has drawn the attention of various government regulators due to a flurry of questionable tweets. In February 2018, Musk tweeted “Tesla made 0 cars in 2011 but will make around 500k in 2019.” Following this tweet, the SEC asked a local judge to hold Musk in contempt, claiming Musk had provided false information (Tesla only produced 400,000 vehicles in 2019). Additionally, on April 1, 2018, Musk tweeted “Despite intense efforts to raise money, including a last-ditch mass sale of Easter Eggs, we are sad to report that Tesla has gone completely and totally bankrupt.” This April Fool’s joke caused shares to drop by over 5%, reaching a low of $244.59 the next day. Lastly, in August 2018, Musk tweeted that he was looking to take Tesla private at a price of $82 billion, driving up the stock price to a high of $371 a share. The SEC sued Musk, claiming he had misled investors (Musk settled the suit). It appeared as if every time Tesla had some positive momentum, Musk seemingly sabotaged Tesla’s growth, leading to many investors questioning his role as the face of Tesla.
But Twitter wasn’t Tela’s only source of issues; the company has a long history of underperforming. In April 2019, Tesla reported a $702 million loss from the first quarter of 2019. Much of this loss can be attributed to Tesla’s inability to produce the much-anticipated Model 3 which was supposed to be the car that introduced the middle class to electric vehicles. At a price of $35,000 with a 322-mile charge and a 3.2 seconds 0-60 mph acceleration, the car was competitive with top-notch sedans. Because of its vast popularity, orders for the Model 3 sky-rocketed, leading to a mismatch in production and deliveries. Additionally, a class-action suit was brought against Tesla due to an “alarming number of car fires” caused by damaged lithium-ion batteries.
The sudden increase in interest amongst investors was a result of the company’s recent release of its 2019 fourth-quarter financials. Tesla exceeded expectations by generating $7.4 billion in revenue and $105 million in net profit. Tesla has solved its delivery issues that plagued them throughout the preceding decade, delivering 367,500 vehicles in 2019. In addition to these figures, Tesla also announced that it was ahead of schedule with its production of the Model Y SUV. The current hope is that the Shanghai factory, the Gigafactory 3, will help increase sales in eco-friendly Asia. Tesla has also capitalized on short-selling, as the growing price has worried investors into buying back their stock. The panic amongst bearish investors has led to a price hike, with traders overpaying to buy back shares.Looking forward, there is much to like about Tesla. The electric vehicle industry is growing rapidly and Tesla has a sizable head start on the rest of its competitors. Tesla is creating a collection of cars that appeal to all drivers: a sedan (Model 3), an SUV (Model X), a luxury vehicle (Model S) and a compact SUV (Model Y). What remains to be seen is if Tesla can properly scale. In a late November conference last year, Musk announced the Cybertruck, an all-electric pickup truck, which they hope will revolutionize the trucking industry. Investors were always intrigued by Tesla’s potential but just needed the numbers to validate their beliefs. Tesla has solved most of its execution problems and will continue to push the boundaries for electric vehicle production for years to come.
Photo Caption: Tesla stock has been surging.
Photo Credit: http://www.car-brand-names.com/tesla-logo/