Tesla Stock; What Do You Need To Know Before Buying

Tesla is definitely one of the most recognisable names in the world. Elon Musk’s multinational automotive and clean energy company has made waves in the last few years, in no small part due to its eccentric CEO. With all its innovations in green-energy, vehicles, and artificial intelligence (AI), it is no wonder why investors are salivating at the opportunity to nab a piece of the Tesla pie.

Tesla shares are currently at a relatively low point, sitting at around 162 USD as at 23 April 2024, according to Nasdaq. However, it does appear to be on an upward trend, making this a prime opportunity for investors who are eager to own some shares. The graph below shows how Tesla share prices have dipped in April and subsequently recovered.

Source: Google Finance

Recent events that could impact Tesla’s share price

Before you jump on the bandwagon, investors need to be aware that Tesla has its own share of stumbles and failures too.

The Cybertrucks recall

Just recently, the company had to recall all of its new Cybertrucks because of a fault found in its accelerator. And just five years ago, the Cybertruck faced a major failure as well when CEO Elon Musk claimed that the Cybertruck was bulletproof enough to withstand a shot from a handgun, before promptly shattering the window with a metal ball.

If that isn’t bad enough, hundreds of thousands of other Tesla vehicles have also faced recalls due to a variety of issues; ranging from hood latch issues, problems with the self-driving AI, suspension problems, brake issues, and more.

Another round of job cuts

Even more recently, Tesla shares took another hit, losing around 6% in share price as CEO Elon Musk announced another round of job cuts. According to the Business Times, up to 500 employees were laid off, essentially shuttering the entire Supercharger division.

As of 2 May 2024, the stock ended the day at 183.28 USD, which is a decrease of around 26% for the year. Even upper management is not safe from these job cuts as two senior executives were also laid off.

Gigacasting ambitions curbed

It also appears that Tesla has abandoned or put on hold efforts to develop new and innovative “gigacasting”, which would have opened up new opportunities in the manufacturing process. According to a report by Reuters, the company appears to be sticking with its more proven method of casting vehicle underbodies in three pieces; two gigacasted front and rear sections and a midsection made of aluminium and steel frames to store batteries. This is the method used in their latest Model Y crossover SUVs and Cybertrucks.

Don’t forget to look at the big picture

So before you rush to nab those shares, here are a few things to consider before buying into Tesla.

Issues with categorising Tesla

Depending on what type of investor you are, Tesla might be a tricky investment. This is mainly because there have been some problems trying to define what kind of company Tesla is in the first place. Some see it as an automobile company, while others see it as a tech one.

This lack of clear definition is something of a red flag in itself for prospective and current investors who need clear categories when designing their portfolios. 

The future performance of EVs is critical

Electric vehicles (EVs) are certainly a revolutionary invention that can help cut down carbon emissions. While we can somewhat predict how EVs will perform, it is impossible to say for sure if it can gain the traction necessary to vindicate Tesla’s share prices. While electric cars and driverless vehicles appear to be the future of the automobile industry, growth may slow to a crawl if less developed countries are themselves slow on the uptake of both EVs and EV infrastructure.

The success of Cybertruck

As mentioned previously, the new Tesla Cybertruck was issued with a recall. This, together with earlier price cuts, saw Tesla’s share prices drop to around 147 USD, around a 16% decrease, according to Forbes. This is pretty dire news for the company who is supposed to be a leading figure in the automotive and clean energy industry. 

In recent days, share prices have managed to recover somewhat as the company promises to accelerate the rollout of more affordable models, but the issue still stands, especially after the aforementioned price cuts to existing models in an effort to be competitive in an ever more crowded EV market. If they can resolve Cybertruck’s issues in a timely manner, they will be more likely to maintain their upward momentum.

Competition in automakers market is a challenge

It is impossible to know exactly how EVs will perform in the future, let alone Tesla. Predictions about performance will at most be just best guesses. However, we can be certain that the EV market is getting more crowded. Tesla may have been a big pioneer in the EV space, but many competitors have caught on to the potential of green vehicles and have been looking to corner a part of the market for themselves. Big names such as Audi, BMW, Hyundai, and KIA all have a number of EV models up for sale. China is also making a big push into the EV scene with companies such as Li Auto and BYD offering stiff competition to the international market.

Even Warren Buffett, arguably the world’s most successful investor, has aired his doubts about investing in automakers. In an interview with Barron’s, Buffett said that there simply is too much global competition to see a decent return with automakers. The transition towards EVs also pose huge capital costs and risks in the near term before it becomes clear which companies will be successful.

Is it worth the risk?

Whether or not Tesla is worth the risk to investors is hard to say. Despite this, it appears to still be a popular choice with future potential.

EV and AI industry

After all, not many can resist the allure of the EV and AI industry. Just bear in mind that though Tesla is hugely speculative, that doesn’t mean that you can’t make money off of Tesla stocks. 

Robert R. Johnson, PhD, CFA, CAIA, professor of finance, Heider College of Business, Creighton University, said that he would not bet on Tesla at these valuation levels; but he also said he wouldn’t bet against the firm either.

Pledges to ban internal combustion engines

Another thing to consider is the fact that a number of countries have pledged to ban internal combustion engines (ICE) in the near future. Countries such as Singapore, Britain, the US, the EU, and Japan are all looking to make the shift towards full EV adoption by the 2030s.

Norway is one of the countries that are already way ahead of the pack, pledging to only sell zero emission vehicles from 2025 onwards. These developments are sure to be a boon towards the EV market’s investment prospects.

Tesla’s role as the original disruptor in the EV space

In the end, it is up to the individual investor. If you truly believe that 2024 will be a good year for Tesla’s stock, then you might be best suited to pursue it. After all, Tesla was the original disruptor in the EV space, despite all of its setbacks. Showing that there is a market for this sort of thing.

Just keep in mind that there is always a risk when it comes to investing. S&P Global ranks Tesla as a medium risk ESG company, although its status within that category has been called into question in the past. Musk himself has blasted the idea of ESG in the past. So if that’s your concern, then maybe this isn’t the stock for you.

For everyone else, it depends on your own risk appetite. The company has certainly had a rocky time over the past few years due to numerous issues, but there are still those who believe in it.