Oh no, Tesla again, one of our favourite stocks in recent years and you can see why.
Growth and a near cult following emerging. Must be ingredients for success.
If its in the news its relevant and this company has embodied unprecedented interest across the generations, those keen on saving the environment or those interested in the next big investment.
Investors will likely get some guidance regarding 2021 growth and future demand when Tesla reports fourth quarter earnings on Jan. 27th.
Delivery forecasts will be a key factor to watch for the stock.
Globally, Tesla's vehicle deliveries reached almost 500,000 units in 2020. Tesla continues to be the leading producer of electric vehicles. At the same time, Tesla's Model 3 has become the best-selling plug-in electric vehicle model globally. In the fourth quarter of 2019, deliveries of Model 3 vehicles accounted for over 80 percent of Tesla's vehicle deliveries by model, duping the Model S and Model X products, which were originally aimed at customers in the high-end sphere of the market. With the release of the Model 3, Tesla is now targeting a wider customer market with its new Model 3 and Model Y. Tesla is expected to add the Roadster and the widely anticipated Cybertruck to its currently existing model line-up. Exciting times.
Why the growth and optimism of the stock? Have established automobile players fallen behind the electric car program? Possibly curtailed by COVID-19 and did Tesla enter the markets earlier and stronger? Has the massive impact on the Chinese market assisted?
Surely yes to all.
Tesla, the brand name has become synonymous with electric cars, and consequently iconic to enthusiasts.
Its early market share in the electric car development was paramount. Whilst we were still buying diesel engines, with the know pollution they caused, we scoffed at enthusiast of electric cars a decade ago, criticising cost, driving range and difficulty to charge them.
The significance of market share is vital, consumers' preference for an established product over other similar products coming to the market is well known. Who prefers Barrys- Cola to Coca-Cola? They probably taste the same right.
A higher market share usually means greater sales, lesser effort to sell more in the long term and a strong barrier to entry for other newer competitors. A higher market share also means that if the market expands, the leader gains more than the others because they are there already. Look at the history of Microsoft as an example.
Back to the earnings report, Tesla’s shares are still performing very well even after rising more than 740% in 2020. Tesla stock is up another 17% year to date. The S&P 500 and Dow Jones Industrial Average, for comparison, are both up less than 1%.
Tesla began delivering made-in-China Model Y crossover vehicles on Monday in China, the only economy which has rebounded in terms of growth since the pandemic and an economy which is predicted to be number one in the not so near future. Experts predict local production for the company will impact everything from delivery volumes to profit margins.
The Chinese built Model Y was approved for sale late in 2020 and Tesla confirmed that production had begun when it released fourth quarter delivery figures in early January. Now customers are already getting their cars.
Profit Margins & Demand
Local production, in China, or other geographic regions means lower delivery costs. And lower costs help Tesla make more money. That was the scenario that unfolded in 2020 with the Model 3 sedan as Tesla’s Shanghai facility ramped up production. “The cost of vehicles produced in Shanghai in Q1 is already lower than the cost to produce the Model 3 in Fremont,” reflected CFO Zachary Kirkhorn on the company’s first quarter 2020 conference call.
Lower costs have also allowed Tesla to cut prices several times in 2020. CEO Elon Musk is prioritizing volume growth over profit margin for now. He wants Tesla to get as big as it can and produce lower priced cars for different sectors of the car market. “I think we will not succeed in our mission if we do not make cars affordable,” said Musk on the company’s second quarter 2020 earnings conference call. “Yes, we need to not go bankrupt, obviously, that’s important...But we’re not trying to be super profitable either.”
Tesla will have more cars made in China in 2021 than it did in 2020 as it ramps up production of the Model Y. The company’s Texas facility as well as its Berlin, Germany facility should come soon.
More capacity is important for investors. Tesla delivered about 500,000 cars in 2020. Wall Street expects that to rise to about 840,000 cars in 2021. Delivery estimates for 2021 have been rising in recent weeks.
Will President Biden have a better relationship with the Chinese, will this assist Tesla? The Chinese government has stated its preference to electric cars.
In a Twitter post in October 2020 Elon Musk declared the company plans to make 20 million cars per year before 2030 – a figure that would require “consistently excellent execution.” In the same series of posts, he claimed the market could reach 30 million new electric vehicles per year in five to seven years.
To back these projections between 2021 and 2026, the size of the global electric vehicle market is expected to increase almost five-fold to reach an estimated global market size of 567 billion U.S. dollars by 2026.
What does it mean for the stock??
It seems fair to say that institutional investors will continue to back the company, but how will traders fair during its latest earnings release?
In the short term an earnings report impacts stocks like nothing else causing volatility and price direction.
Because of the potential for relatively big price swings, investor returns can be heavily influenced by how a company’s earnings report is received by the market. It is not unusual for the price of a stock to rise or decline significantly immediately after an earnings report. This potential for a stock to move by a large amount in a certain direction in response to an earnings report can create active trading opportunities.
Buy or sell trade positions often mimic long and short positions of an investor. A trader can open a buy option before the earnings announcement if the expectation is that there will be a positive price move after the earnings report. Alternatively, a trader can place a sell position before the earnings announcement if the expectation is that there will be a negative price move after the earnings report.
There are several ways to trade the announcements as highlighted previously and numerous strategies employed by experienced traders.
Trading CFD’s or Options involves more risk than buying and selling stock in the long term, trading and investing are different animals.
Looking to practice short term leverage trading, we suggest using virtual money first, there will always be opportunities to trade data releases throughout the year.