Looking Into the Financial Future of Tesla

Courtney Kiely
July 17, 2019

Tesla is a company that has a chance to not only change the automotive industry, but to change the way we commute altogether. Founded in 2003, the company has been able to compete with giants like Ford and Chevy and pave its own path in an increasingly dense market. Everyone knows the CEO of Tesla, Elon Musk. His ventures go further than just Tesla, with Musk’s other companies being SpaceX and the Boring Company to name a few. He isn’t 100% committed to Tesla, and this is one of the problems that investors see. They have a hard time justifying Tesla’s current price of around $245 per share (steadily increasing).

Meanwhile, Tesla is coming off of a phenomenal Q2 where they saw delivery grow substantially. In Q2, Tesla was able to deliver 95,200 vehicles. This is higher than analysts predicted, and a great sign for its ability to get its cars out to their owners. With all this said, will Tesla’s stock continue to rise, or will issues cause the company to have setbacks? With all these questions and more, we ask one more important question: What does the future of Tesla look like?

Elon Musk is the closest thing we have to a real-life Tony Stark. The guy has completely changed the world already, and his companies are still really just in their infancy. As mentioned earlier, Tesla isn’t Musk’s only company. He’s created companies for over 20 years, some he sold (PayPal), and some he’s still part of. To some, Musk is the reason to invest in Tesla. His vision of an electric future with autonomous cars is something that seems like fantasy, but to Musk, it is a reality. We just haven’t gotten there yet. It’s the same for SpaceX and the Boring Company. These companies have world-changing goals, and because of this, sometimes the smaller-picture issues aren’t handled properly.

While Musk may be a reason to invest for many, others see him as unstable and not the right fit to run a company like Tesla. He’s not a conventional CEO, and because of this, he’s polarizing. One analyst said that he won’t invest in Tesla because there’s “too much of a distraction at the top,” and I think this should be a genuine concern or investors. No matter what is said about Musk, he’s a brilliant man. His companies have gotten to where they are because he knows that his vision is, and he’s willing to hire the right people for the jobs.

Another issue is the slight drop in demand for Tesla among consumers. Some say that Tesla now has far too much capacity relative to demand. It must also be mentioned that the US Government hasn’t really helped Tesla out at all. On July 1st, the government changed the tax credit for those who purchase a Tesla vehicle from $3,750 to $1,875. It’s a substantial change, but I don’t think it’s enough for someone to not want to purchase a Tesla vehicle.

If Tesla were to stop investing in growth, it would have much more revenue. It’s trying to completely change the automotive industry, and because of this, its profits aren’t as high. It’s burning through a lot of cash, but the results seem to be positive as of right now. Besides these things, analysts are mostly pretty positive about Tesla. ARK Invest and Tesla shareholder Cathie Wood spoke about the company, and specifically, Musk when she said,

Everybody is beginning to adjust for Musk... Having been a portfolio manager for many years, I know how to adjust to what different CEOs say given their personalities and their aspirations... The same thing was happening with Amazon for years. We were considered crazy, and yet now it seems so obvious. I think the same is going to be true of Tesla.”

This is pretty high praise. Wood even estimated that Tesla could reach $4000 per share within the next 5 years, with her worst-case being $700 per share. There are many different reasons to be this optimistic in Tesla. To start things off, last year showed that Tesla is moving in the right direction. The company was able to post profits for two quarters in a row last year. It might not seem like the biggest deal, but it’s positivity for a company that’s been on the brink of destruction a few times.

As mentioned earlier, Tesla has invested largely in itself. They’ve ramped up production and even created a gigafactory to produce batteries for the Model 3, and others. If the market shifts over from gasoline powered vehicles to electric, Tesla is positioned to become the leader in the market. Its gigafactory is providing an optimistic future for not only Tesla but for the idea of electric cars in general. With the increased demand for electric vehicles rising by the day, those vehicles need a strong enough battery to make the purchase justified. This is why Tesla is investing heavily in its gigafactory. They want to be both make their own vehicles while supplying the batteries that make other vehicles run. It’s really a smart move.

There’s also a downside to the gigafactories and Tesla’s whole mentality when it comes to their electric vehicles. If the demand for said vehicles isn’t as high as the company imagines it will become, then Tesla just invested millions into a factory for a technology that may not be ready yet. As was mentioned earlier, the company is focused on growth and because of this, the revenue isn’t as high. The gigafactory is a great example of this.

Even with the potential for failure, it’s hard to not get excited about Tesla. AutoTrader named the company the "Most Loved Brand" for 2019 based on a survey of 60,000 car owners. People who own Teslas normally love their vehicles. It’s almost like owning a Tesla vehicle is a status symbol for many, while also being a dream. I know for myself, owning a Tesla would be quite the accomplishment.

Most people’s opinions on Tesla come down to how they see CEO Elon Musk. While some argue that he’s a pioneer in the industry, others think that he’s not focused enough on one single company. Which one of these groups is right, if either, is something we won’t know for a while. What we do know is that Tesla is one of the most exciting companies in the world right now. Tesla is focusing on the future and the present more than ever. The company has either failed to deliver on promises it’s made due to looking too far into the future or focusing too much on the present. Right now they’re balancing both, and Q2 of this year should be a solid indicator for this. Tesla is on a path to doing something few companies will ever be able to do, and their stock price is only going to increase. The concerns are rightly there, but Tesla knows what its goal is and how to get there. It’s truly an exciting time for Tesla.

If you want to look further into Tesla from a financial and company point of view, I would check out US Core Market Data from Intrinio.