TESLA on Sale
Table of Contents :
Tesla Stock on Sale.
Facts.
Demand.
Setting Apart.
Why Tesla Stock Down.
Human Psychology.
My Perspective.
Disclaimer.
Tesla stock is down almost 60% from its peak, so has the time come to buy as it looks like a sale to me.
But there are others who think this downtrend has just begun so let me spell out my perspective.
Tesla Stock on Sale :
No doubt how you see it Tesla stock is on sale.
From a 52 week high of $318 it went down to a low of almost 100, which looks like a steal in hindsight.
At about $165 on the day of recording, it went down 60% from it’s all time high.
We all remember when it had a trillion dollar valuation that made Elon Musk the richest man on planet.
As a mater of fact, Tesla has been a very volatile stock thorough its existence.
Now what has changed that brought about such a heavy discount on its stock price, my answer is a lot but mostly in a positive way.
Facts :
The company and it’s business model remains robust as ever.
The fact remains, production is up quarter on quarter as rate of their growth remains robust.
Even after fall in their margins in Q1, they still make over 20% automotive margins which is close to double than its next big competitor.
They have been making record profits which are seeing a healthy jump every quarter, inspite of multiple price cuts this year.
Now what does this basic data tells you, business is good.
Then you would ask why stock is going south, one of the reasons is human phychology behind investing.
Demand :
There are two major factors that make a successful business, demand and pricing power.
Look at Apple, their cell phones are more expensive than an average laptop but still can sell in record numbers.
Similarly Tesla always had a wait list that proves customer loyalty.
Lately this waiting list was reduced as they build up more capacity, where rate hikes also played a part.
That is where pricing power came into effect, where they reduced prices worldwide to pent-up demand, while still enjoying close to 20% automotive margins in Q1.
I believe demand is no problem for them till they remain industry leaders.
Setting Apart :
Before jumping to any conclusion, let's see why Tesla is different from other automakers.
Being a pioneer gave them a first mover advantage, because EVs were never mainstream before.
That gave them an awesome brand recognition to start with as others are just trying to catch up.
Their cars collect most miles of real time data to feed their FSD algorithm, which is a high margin recurring income.
Tesla has 4 operational plants and people are talking about a possible new one in Mexico.
As compared to last year’s sale of 1.3 million cars, this year they are targeting almost 1.6 which is an explosive growth by any stretch of imagination.
Why Tesla down :
There are multiple reasons why Tesla stock is down but nobody wants to dig deeper.
Fact remains, Elon was exercising his options which otherwise would have expired worthless, and finally his Tesla shareholding went up after that.
Secondly, rapid rate hike by the Fed destroyed demand where the goal was to control inflation.
Consequently, all assets including stocks lost value and Tesla was no exception.
But they are able to increase demand by adjusting their price, which reduced their margins that remains over 20%.
All this news put an additional psychological selling pressure on the stock, which might offer a buying opportunity for a long term investor but with a right risk tolerance.
Human Psychology :
Stock investing has two components, Fundamental analysis and the most important human psychology behind investing.
Therefore when prices go down, psychologically people panic and sell what they bought thinking they were going to hold for long-term.
When there is a panic and everything is selling for a discount you are basically selling low.
On the flipside, you buy during boom cycle at a higher price but then people say it’s hard to money in stocks.
Don’t you think people buy and sell at the wrong time and for wrong reasons.
The basic rule of investing is, buy low and sell high while keeping a lid on your human emotions while investing.
My Perspective :
I believe Tesla’s business plan alongside their technological lead will enable them to dominate the auto industry for a long time.
Ask yourself, will you be able to buy Tesla at $165 range in couple of years down the line, the answer is possibly no.
Don't get me wrong, it can still go down more who knows welcome to the world of stock investing.
Often fortunes are built during times of panic, therefore why would I wait till they grow big and then I start buying.
The logical step is to buy now in small increments, and let them execute their well thought out plan.
Disclaimer :
As a disclaimer, I’m not a financial advisor please consult one before investing based on your personal financial situation.