Value stocks are securities of companies that are usually significantly underestimated by the market. An essential component of such stocks is the ability to generate cash flow in the long term. This cash flow leaves them with the potential for capitalization growth. Often such securities are undervalued due to external factors rather than actual financial indicators. Tesla is a world-famous American company for the production and sale of electric cars. This report will look at the expansion of stocks at value for Tesla company.
The data shows that the value of Tesla shares exceeded $900 for the first time. The stakes are growing on the back of a successful end of the year and optimistic forecasts, but not all experts share faith in the company’s success (Gilson & Abbott, 2017). In February 2020, the value of Tesla shares exceeded $900 apiece for the first time, showing an increase of 20% for the second day in a row (Yamazaki et al., 2020). There are several objective reasons why Tesla company has seen a rise in shares.
Firstly, it is an increase in the number and volume of car deliveries. At the end of January 2020, Tesla reported that in the fourth quarter of 2019, deliveries of electric vehicles increased by 23% and amounted to 112 thousand, and by the end of the year, they reached a record 367 thousand (Gilson & Abbott, 2017). Still, it should be borne in mind that the company has never ended the year without incurring any losses (Appendix A). Thus, the company has fulfilled the goal to ship 360-400 thousand cars, set by Tesla CEO Elon Musk. Another reason for the active growth of the share price is the successful partnership with Panasonic and CATL.
On February 3, 2020, Panasonic announced that its joint battery production with Tesla had made a profit for the first time in the fourth quarter of 2019, but the company did not disclose the exact figures. In addition, the Chinese manufacturer of batteries for electric vehicles, CATL, announced that it had signed a supply agreement with Tesla for a factory in Shanghai (Reuters Staff, 2020). One of the significant shareholders of Tesla, billionaire Ron Baron, stated that Tesla could reach $1 trillion in revenue within ten years only on the business of producing electric vehicles (Wayland, 2020). Thus, these strategic decisions have become a solid basis for the growth of the value of Tesla shares and the revision of the target price for the shares of this company. Nevertheless, as of November 2021, Tesla’s shares, on the contrary, are beginning to lose their value.
According to auction data, the value of Tesla shares declined by 6% at preliminary auctions after the company’s founder Elon Musk announced the possible sale of 10% of the company’s securities owned him (Appendix B). The entrepreneur noted that there had been too much talk lately that unrealized profits are a way of tax evasion, which is why he offered to sell part of the company’s shares (Christoforous, 2021). He claimed that he did not receive a salary in cash or bonuses, and his entire fortune exists in the form of shares. Therefore, selling shares of his company is the only way for him to pay taxes, Musk wrote in the comments to the survey. He promised that he would act in accordance with any result of this survey.
Meanwhile, the company is expected to report non-GAAP earnings per share of $5.46 in 2021, bringing the forecast P/E ratio to 134 – a figure expected to grow by 33% in 2022 and 24% in 2023. These coefficients reflect how optimistic the market is about the future of the business (Strauss & Smith, 2019). Perhaps the fact that Tesla is considered to be more valuable than the world’s five largest car manufacturers combined should be taken into account when investing in these stocks at the moment (Strauss & Smith, 2019). The indisputable fact is that even small negative changes that will affect the company’s prospects can lead to a serious correction of its valuation.
Christoforous, A. (2021). Elon Musk tweeting about selling Tesla stock is ‘a branding event,’ Oppenheimer analyst says [Video].
S. C., & Abbott, S. (2017). Tesla Motors (A): Financing Growth. Harvard Business School case study (218-033).
Reuters Staff. (2020). China’s CATL signs battery supply agreement with Tesla. Reuters. Web.
Strauss, N., & Smith, C. H. (2019). Buying on rumors: How financial news flows affect the share price of Tesla. Corporate Communications: An International Journal. Web.
Yamazaki, M., Jin, H. & Vengattil, M. (2020). Another day, another record: Tesla shares march toward $1,000. Reuters. Web.
Wayland, M. (2020). Tesla investor Ron Baron sees $1 trillion in revenue in 10 years — and that won’t be the end. CNBC. Web.