Tesla’s mission is to accelerate the world’s transition to sustainable energy. It produces a variety of cars and trucks, the Model S, X, 3, Y, a Semi truck to revolutionize the shipment industry and the Cybertruck. Tesla operates a large amount of factories, including its famous Fremont, Texas, Berlin and Shanghai factories and many more across the US and globe. Tesla goes full circle with its manufacturing of sustainable energy ecosystems; its Powerwall, Powerpack, and Solar Roof help homeowners partake in the future of residential energy use. Here are the geographic regions in which Tesla derived its revenue in 2019 according to the latest 10-Q. Scandinavia is a big fan of Tesla:
While Tesla is renowned for its software in self driving technology and energy storage R&D, it derives most of its cash from its automobile division. Its energy segment has grown a lot in the past couple of years, and could prove to continue on this trend. However, Tesla does not derive enough profits relative to its automotive segment to justify shifting focus more fully towards its energy division.
Tesla has a variety of costs to run its business including R&D, maintenance, production costs, and on goes the list. While its expenses have increased on average over the last year, Tesla has successfully managed to bolster its revenues and profits enough so that as a percentage of the revenue, costs have actually shrunk. This means that revenues and profits have grown at a faster rate than costs.
The following graphs will show you better than words the top ten players in the automobile space against which Tesla competes. They have unique characteristics, advantages and market exposures. The following graph compares the firms by market size (the stock price times the number of outstanding shares) where Tesla's market cap is equal to $616 billion representing the lion's share of the EV market today;
Source: S&P Market Intelligence
By revenue Tesla ranks among the top players too. Tesla has shown an increasing trend in its generation of revenues over the past couple of years accompanied by a decreasing trend in costs as a percentage of revenue.
Source: S&P Market Intelligence
Net income performance shows that there are more companies with lots of resources to invest in new projects, or pay dividends than Tesla. However, Tesla is probably more exciting in terms of growth, considering that 2020 was a benchmark year for profitability. The firm had negative net income margin figures until 2020 so this is a turning point in the life of the EV giant.
Tesla competition within the EV space
Tesla proved in 2019 that its brand was top of the line, ripping away from Chinese counter-part BYD and taking a decisive lead in the run up to 400,000 units per year produced. The Chinese are probably more of a threat to Tesla than the Germans in terms of market share competition, which is why Tesla will most likely attempt to improve its position in China in 2021. While Tesla excels as a stand alone EV player, the firm will eventually face an increasingly concentrated and saturated market as more players come in to grab profits.
Tesla has clear competitive advantages
Tesla’s advantages can be identified as the following;
- First arriver in the EV space advantage
- Self-driving technology software and talent
- Consumer brand preference
- Supply chain and factory localization improvements
- Energy storage segment for homeowners for product diversification
Share price and financial performance
Cashflow from operations indicates the money made from running the business i.e. from selling the good or service. Tesla used to lose money in 2016 and 2017 compared to earning positive figures in the following years.
Tesla’s earnings per share ratio was positive for the first time this year, which indicates that the company is now profitable. Usually a positive number means that the company is in decent standing all things being equal. The price to earnings ratio, which indicates the price investors are willing to pay for a dollar of current earnings is 229.2 which compared to an industry average of 88.4 is outstanding. In terms of stock valuation this could either indicate an overvalued stock, or that investors are confident in the company.
Here is a graph of the Tesla stock market price performance relative to its industry and the S&P500.
Source: BoA Global Research
Tesla Faces Risks and Challenges
Foreign currency risk; Tesla recognized a net foreign currency loss of $144 million in September this year. This makes sense considering a weakening dollar and half of their business revenue coming from outside the US in Euros, Yuan, and Canadian dollars.
Legal proceedings at Tesla are;
1. The Bay Area Air Quality Management District issuing notices of violation related to air pollution permits.
2. In Germany, a fine of 12 million euro was issued for non-compliance with end of life battery obligations.
Macroeconomics related to covid-19; Operations were temporarily suspended at factories in Nevada, furloughs increased, DMVs closed (where you register vehicle in the US), spending was down, and car usage and purchases was down.
Operational issues include;
- Delays in launching production
- Inexperience at ramping up production of the January 2020 model Y
- Training and paying workers to build model Ys on scale
- Delays in the launch of the energy storage products and the Solar Roof, the Semi and Cybertruck
- Sales are uncertain abroad
- Charging networks are hard to predictably install
- Suppliers exposure to covid-19 regulations
- Battery recycling
Tesla Bulls and Bears:
Bulls might argue:
- Long-range EV tech, self driving tech and battery tech can revolutionize the automobile playing field. Tesla's supercharger network makes it the only automaker working on improving the driving range
- Advantages of recharging over gasoline is significant and instant torque generates a unique driving experience as the vehicle can drive in ''Ludacris'' mode, an instant full power mode.
- Recent financial performance and S&P500 integration shows promise for future returns.
Bears might argue:
- Tesla carries a lot of uncertainty since the market has high expectations for the stock. A slowdown in growth, execution problems, or lack of capital could lead to a severe decline in the stock.
- Tesla relies a lot on Elon Musk; they even point this out in their financial reports as a company risk. His behavior is under scrutiny by the public.
- Mass EV adoption by consumers is not yet achieved despite increased public adoption of the movement. If Tesla's demand fails to materialize and if the company struggles to recoup the costs of its factories, resourceful players like the Chinese, American and German car makers could pressure Tesla out of its leadership position in EV.
Tesla financial statements from EDGAR SEC, 10-Q3
S&P Global Market Intelligence
BoA Global Research