There Is Still Time To Hop On The Tesla Wave
In the previous edition of The Commentator, I wrote an article titled Now’s The Time To Hop On The Tesla Wave. There is a hook about boogie boarding and a poetic and visual metaphor about the ocean as well. It was a well-written article, if I do say so myself.
Even better than the writing quality was the opinion that Tesla’s stock (NASDAQ:TSLA) was undervalued and the stock was going to go back up — and it did. Since the publication of that article on December 28, 2022, Tesla’s stock has increased by about 23%. However, the reasons that are being attributed to this increase are not the ones that I mentioned.
Since the writing of the previous article, there has been a macro shift in the economy. The Federal Reserve’s battle with inflation is going better than expected and investors expect rate hikes to slow. This means borrowing capital will be cheaper, making it easier for businesses to receive capital, by way of operational revenues and by borrowing. This has caused many stocks that were previously decreasing in value to change direction.
This is a bigger deal for tech companies more than other companies, as tech companies have been seeing worse decreases in value. The pandemic created a mini bubble around tech companies which had inflated values beyond what is realistic, but this bubble seems to now be over as tech companies that crashed are now showing signs of recovery. Additionally, the headlines of newspapers lately have been listing which big tech company is going to perform large rounds of layoffs. Elon Musk, Tesla’s CEO, announced plans to reduce Tesla’s salaried workforce by 10%. With fewer expenses and slower rate increases, investors have started looking at Tesla more favorably again.
But this is not the reason the company’s stock price is up 23%. The main reason investors have started buying the stock again is Tesla’s surprise price cuts. Without any warning, Tesla decreased the prices of all its models internationally. These price cuts vary from 3%–20% on each model and have brought Tesla vehicles back into a competitive range with other electric vehicles.
On top of these price cuts, the new Inflation Reduction Act allows Americans to file for a $7,500 tax credit for the purchase of a “clean” vehicle. Clean refers to hydrogen fuel or a plug in electric vehicle. There are a series of other requirements which make redeeming this $7,500 difficult, but in theory, it brings the price of the Tesla’s cars even lower.
The introduction of electric vehicle tax credits on top of Tesla’s price cuts have not only been a significant factor in the boost of the company’s stock, but also brought down the stock of other electric vehicle manufacturers. Investors predict more people will pick Tesla vehicles instead of their competitors, forcing them to sacrifice more money to sell their vehicles and decrease their already significantly lower profit margins.
Tesla will release quarterly earnings this week, which will tell a lot about its performance this past quarter and will prove somewhat indicative of what to expect this upcoming quarter.
Tesla’s stock has increased due to some unexpected reasons, but the reasons mentioned in my earlier article still hold true. While their earnings report may impact the stock’s short-term performance, over the longer term their stock will go up as the company is still expected to roll out the Cybertruck, semi-truck, new roadster model, new battery model, the first version of their humanoid robot and start beta testing full self-driving mode this year. The auto vehicle manufacturer is still the only one of its kind, still growing at a fast pace, still has higher profit margins than all its competitors (even with price cuts) and still has easy access to capital and high aspirations. The markets are performing better, the swell waves are among us and Tesla still seems like the wave that will go the farthest.
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Photo Caption: Tesla Driving
Photo Credit: Unsplash - Darpanvisuals