The latest Tesla Yahoo Finance quarterly earnings report and updated projections of its future stock market valuation are nothing if not impressive. After more than 6 years at $56.25 per share, shares have jumped to $8.13 – that’s an increase of over 200%. With investors expecting to see sales growth between 40% and 45%, analysts at BMO Capital Markets predict a return on net income exceeding 12 times next year…
Tesla Yahoo Finance
Given how prominent they’ve become since Elon Musk first founded the company in 2003, its recent rise to where it is today has certainly attracted some attention. So, I decided to look into this once again when examining the results of Tesla’s Q1 2022 quarter. Now, as usual, this story begins with a summary of the most significant findings from Google Trends. Here’s what I found.
Is there any chance of a slowdown now?
The search trend generated by Google provides us information about potential trends in global markets in relation to various categories. In the case of Tesla we can see that searches for ‘Tesla Stock Market Value’ and ‘Tesla Shares’ increased sharply over the last few weeks.
It seems that while prices of stocks have been rising steadily over the course of 2019, 2022 appears to be a turning point. This change may be due in part to several factors. Firstly, higher interest rates have begun to bite, which can lead to people seeking safer investments and thus driving up demand for safer bonds, notes Ben Ritchie, senior equity analyst at CIBC Capital Markets.
Another factor is surging inflation rates, although still somewhat below average as compared to historical averages. As reported by CNBC.com, US CPI rose 3.6% in June from a year ago, topping off already high levels.
At least one major central bank is preparing to raise interest rates and it is unlikely that those measures will stop rising. Meanwhile, the Federal Reserve announced Wednesday that it would cut its benchmark borrowing rate by 75 bps during a press conference earlier this week.
Such increases will likely prompt higher defaults on financial institutions and cause debt prices to go higher. That would lower bond yields and create a positive bias in the stock market.
Also, according to Morgan Stanley, the impact of rising rates could be limited by a lack of sufficient policy responses, such as aggressive hikes to mortgage rates.
However, even with all these hurdles, investors should anticipate strong returns as economic growth continues to accelerate over time.
Tesla, however, is a brand known for paying out dividends consistently and has been a leading manufacturer of electric vehicles even before CEO Elon Musk publicly launched his company. It must be very satisfying having a profitable division delivering electric bikes/ scooters.
Even though Q1 results were better than expected, our initial guess was slightly optimistic given the state of corporate earnings and growth prospects globally.
The main takeaway here is that the company should continue to grow well and profits likely will grow further as demand for EVs continues to drive global EV adoption.
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Does 2021 make the best investment thesis since 2012?
As far as 2016-2020, 2015-2020 and 2013-2020 are concerned, Q1 of 2022 turned out to be a big disappointment as the overall revenue declined slightly. Still, shares of Tesla managed to surpass their previous highs of just under $55.00 in January 2021, but then fell back to around $28.30 per share by mid-April. All in all, shares started falling further down, reaching lows close to $24.60 in November 2021.
If we compare this drop to the stock market’s steep decline in 2020 after the COVID pandemic began to take hold, things did not go so bad. One year later, the S&P 500 index ended the March-end of 2021 at more than 20,000 points below its peak – a number that no longer makes sense.
And yet, with less than two months until October 8th, investors are betting more on companies coming out of current earnings season and on good numbers posted in August than they are on the fact that the broader economy is slowing down.
On May 19th, Tesla reported record net income that beat Wall Street expectations by almost 25%. Not only that, but it was also the highest in its history. Some believe that Tesla’s increasing market share could turn out to be a huge opportunity – especially considering its large exposure to energy. Let’s consider for instance Tesla’s exposure to battery manufacturing.
According to Bloomberg Intelligence (BI), the production capacity of South Africa-based Gigafactory 4 is about 30% smaller than Tesla’s planned output of 1 million units, despite being built on the same site.
While Tesla had previously planned to build three other factories across North America, Europe, Asia Pacific, China, and Australia, construction of such facilities has been delayed indefinitely as Covid cases soared throughout much of the world.
And that’s a problem because building new factories takes a lot more capital than simply constructing machines and equipment, and in many cases requires access to crucial natural resources.
For example, mining companies are frequently forced to halt projects as they struggle with supply shortages or political tensions, particularly in countries whose borders don’t permit cross-border migration.
Therefore, an abundance of metals, such as lithium, nickel, cobalt and rare earth elements are needed to produce batteries, including cellphones, cars and home appliances.
When combined with raw materials and labor costs, this means that electric vehicle manufacturers have to shell out significantly more money than their conventional counterparts
At the end of May, Tesla’s net profit topped Wall Street estimates, driven by robust shipment volume growth, favorable foreign exchange movements and continued strength in international business operations. These figures also highlight that both volume and price grew strongly.
Looking forward, total deliveries are projected to reach 2.5 million, up from 2.3 million in December 2021, representing double-digit annual growth.
Prices, meanwhile, are forecast to rise rapidly, going from the original range of $76.75/battery to $85.62 this September.
To give you a rough idea of the size of such a move, let me ask you two questions, the first one concerning battery packs: Do you care about performance or price? The second question relates specifically to buying vs. owning.
The answer to this latter question would come as roughly equal to the ratio between 10 cents per watt ($10/W) and 1 dollar invested in electricity produced per hour multiplied by the cost of renewable power in the United States.
We can calculate that with simple arithmetic, the price of 100 W/hour of free energy would equal approximately 11% of the full value of purchases, excluding taxes and subsidies. Thus, a purchase with 100 W would equate to just under 15% of the cost of producing electrical power.
Since the formula above assumes perfect knowledge of the wind, solar, geothermal and hydroelectric power generating capacities, battery capacity (both capacity in terms of units and tonnes) has little bearing on purchasing decisions. Moreover, the difference in pricing is highly dependent on local weather conditions, thus influencing purchase decisions only partially.
So, should investors invest in Tesla now? Why do you think that should be? Let’s understand why. A closer examination of profitability suggests that Tesla’s revenues would remain relatively stable for quite some time. What distinguishes Tesla in this particular case is the sharp upward trajectory in sales.
Currently the company reports a healthy amount of 50% sales growth and expects a similar level of output in fiscal 2023. Of course, as mentioned above, this figure represents merely an estimate and the actual number could vary dramatically depending on geopolitical concerns, macroeconomic factors, and many other variables.
Besides, a majority of analysts believe that the industry continues its recovery path with more than half of them predicting steady growth through the rest of 2022 on autopilot technology and related technologies. Nonetheless, the prospect of achieving near-normalized earnings is very positive.
On top of that, the company’s low operating expenses suggest that it will generate enough cash to cover shareholders’ interests for a very long time.
Given these circumstances, there’s probably little downside risk to investing in Tesla despite the ups and downs that might inevitably ensue.