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Tesla, the biggest electric vehicle company in the United States has been under pressure lately.
The company’s stock has declined from a high of more than $260 per share this year to the current $240. The current price is higher than the YTD low of $195, where the stock traded at in June this year.
As the third quarter comes to an end, traders will be paying close attention to the company.
Brief History of Tesla
Tesla was started in 2003 by two engineers, Martin Eberhard and Marc Tarpenning. The two engineers believed that the future of automobile industry would be electric. The electric cars that were existing at the time were known for being both ugly and inefficient.
These two engineers wanted to change that.
A few years afterwards, Elon Musk, who had made money after selling PayPal invested in the company and later became its CEO.
Today, Tesla is the world’s best-known electric car company in the world.
The company achieved this success using a simple model: Tesla first developed high-performing cars that were relatively expensive. It then developed cars that were slightly expensive. It then used these funds to develop cars that were not very expensive.
The cheapest car the company develops is the Model 3. The company has announced that it is developing a semi truck and another version of the roadster. At the same time, the company has transformed itself from being an ordinary automobile company to an energy and infrastructure company.
It did this by acquiring Solar City, which was founded by Elon Musk’s cousins. It uses its supercharger network as an infrastructure.
While Tesla is a highly successful company, analysts have raised significant questions.
→ How to Invest in Electric Cars By Avoiding Tesla
Analysts' attention on Tesla
Waning Demand
First, they are worried that the demand for its cars is waning. This is partly because of the number of cars that were sold in the past ten years. Global automakers sold millions of cars.
Therefore, while there is some demand for electric cars, car owners are not interesting in adding new cars. This has been worsened by the expiry of tax breaks that went to people who bought electric cars.
Further, in Norway, the company’s biggest market, there have been concerns that the company’s sales have been weakening.
Future Investment
Second, there is the question of the company’s investment in China. This year, the company announced that it had started to build a new plant in China. China is an important country for Tesla because of the large population and the presumed demand for electric cars.
The challenge for the company is that the demand for its cars in the country will likely not be very high. This is simply because most people in China cannot afford the cars.
In addition, with the trade war going on, sentiment for American products might not be all that good.
The rising debt
Third, there are concerns about the company’s debt. The company has more than $13 billion in debt. This is a significant amount for a company that does not make a profit.
This debt will likely cause more problems if the economy was to through a recession. The company will be forced to raise more money, which will lead to dilution.
A competition even higher
Finally, Tesla has the challenge of competition. This is a major problem, especially with all car companies getting into the game. Last month, Porsche became the latest company to get into the business with the launch of Taycan (the two competitors made a challenge in Nurburgring).
Other companies like Daimler, Volkswagen, and Toyota are getting into the business.
→ Implications of a (possible) FCA-Renault Merger
What to do as a trader?
The future of Tesla is uncertain. This makes it a good company to trade because of the amount of volatility it has. This volatility creates good entry and exit points, which are good for making profits to traders.
→ When to Enter and Exit a position
