How to tradeTesla shares

Tesla was founded in 2003 by Marc Tarpening and Martin Eberhard. The pair financed the company themselves until Elon Musk joined the board of directors in February 2004 after a $7.5 million investment in the company. Both Tarpening and Eberhard subsequently left the company, and Musk eventually became the chief executive officer (CEO).

Initially, the company was known as Tesla Motors, but that name was changed to its current name of Tesla Inc. in 2017. The name change reflected a shift in Tesla from being just a car manufacturer to an energy company as well. Aside from making cars, Tesla also manufactures energy storage equipment with the aim of improving energy production systems and electric travel around the world.

Tesla held its initial public offering (IPO) on 29 June 2010 in which 13.3 million shares were offered at an initial price of $17 per share. When markets closed on the first day, Tesla shares had increased in value by 40.53% to $23.89. Since then, the price increased to a peak of around $380 in June 2017. More recently, at the end of quarter one (Q1) 2019, the price of Tesla shares was around the $280 mark.

Learn more about Tesla’s Q1 results

Tesla’s market capitalisation in May 2019 was $43 billion, which was more than more established brands such as the Ford Motor Company at $41 billion, Ferrari at $23 billion and Fiat Chrysler at $21 billion.

Tesla shares: the basics

Tesla shares are listed on the NASDAQ exchange and it trades under the ticker TSLA . If you want to trade Tesla shares, you need to understand the details of the business, as well as the factors that impact its share price.

Tesla’s share price is driven by its branding as much as the popularity of its products – with some market analysts believing that Tesla is overvalued for this reason. Despite this, its most popular car – the Model 3 – became the best-selling electric car in the world in 2018 when it shifted 138,000 units.

The company’s leadership say they want to double this sales figure in 2019, and this prospect stands a very real chance of success given Tesla’s expansion into Chinese and European markets.

In terms of shareholders, Elon Musk holds the largest amount of Tesla stock with an estimated 20% stake in the company. Many have speculated that Musk’s large ownership share is an attempt to assuage worries about the future prospects of Tesla as a viable business.

Some traders have expressed concerns that the CEO holds such a large stake in the company, because if he chose to sell, it could wipe billions off Tesla’s market value. But, Musk has stated that he would be ‘the last person to sell’, so traders need not be discouraged by the fact that one person holds such a large stake in the company.

Musk’s behaviour can also greatly impact the price of Tesla shares. For example, share prices rallied in August 2018 after he tweeted that he was ‘considering taking Tesla private at $420 a share’, although this never came to fruition. But, share prices fell after he was videoed smoking cannabis and sipping whisky as part of a radio interview.

Tesla key personnel: who manages the company?

The Tesla board has 11 members, with the wider company management being comprised of 14 people, including its chief financial, technical and accounting officers. Board members are indicated with an asterisk in the below table.

Tesla boasts a particularly strong roster on its board, including James Murdoch – son of newspaper magnate Rupert Murdoch – and Larry Ellison, who is one of the top ten wealthiest people in the world.

What is Tesla’s business model?

Tesla’s business model is slightly different to some other car manufacturers. For one, Tesla does not sell its cars through franchised dealerships. Instead, Tesla operates through direct sales. The company has a large web of international showrooms which are largely located in major cities around the world. Because it owns its own sales rooms, Tesla creates a unique and tailored customer experience, which is an integral part of its brand.

Tesla CEO Elon Musk has stated in the past that the company’s business model was to ‘accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible’.¹ However, Musk himself admitted that this was simply impossible for a startup to achieve.

As a result, Tesla is widely seen as a luxury – and in some respects – high-performance electric car manufacturer. But, speculation remains over whether in the coming years, Tesla will seek to reinvent itself as an affordable electric car company.

Currently, the model of a personable, high-performance car maker is working for Tesla after the company reported back-to-back profitable quarters for the first time in Q3 and Q4 2018. Elon Musk attributed this to the popularity of the Model 3 with customers of both premium and non-premium brands, stating that Tesla was becoming a mainstream brand.

Tesla fundamental analysis: how to analyse Tesla

Traders carry out fundamental analysis by studying a company’s financial statements including its profit and loss statement, among other things. However, fundamental analysis also relies on external factors which could affect the value of a market such as how in demand Tesla cars currently are and whether people are still more interested in buying petrol over electric cars.

Tesla’s price-to-earnings ratio

Tesla’s stock value can be measured by looking at its price-to-earnings (P/E) ratio . Essentially, it explains how much you’d have to spend on Tesla shares to make $1 in profit. If a company has a high P/E ratio compared to its competitors, then it could be indicative that its stock is overvalued.

The P/E ratio is calculated by dividing the market value per share by the earnings per share. The earnings per share are calculated by dividing the total company profit by the number of shares it has issued. For Tesla, the P/E ratio was estimated by NASDAQ to be 43.20 by 2020.

Tesla’s relative dividend yield

Dividend yield is a comparison of the company’s annual dividends – the portion of profit paid out to shareholders – to its share price. The relative dividend yield is the dividend yield of a single stock compared to that of the entire index. In Tesla’s case, this is NASDAQ.

To calculate Tesla’s relative dividend yield, first calculate its dividend yield by dividing its annual dividend by the current share price. Next, divide the dividend yield by the average dividend yield for the US Tech 100. A low relative dividend yield could suggest that the shares are overvalued when measured against competitor shares. Tesla has never issued dividends to its shareholders, because its current business model is to reinvest any earnings for future growth.

Tesla’s return on equity

Tesla’s return on equity (ROE) measures return on shareholder capital. ROE is expressed as a percentage and can be calculated by dividing a company’s net income by stakeholder equity. A low ROE could be an indicator that a company’s shares are overvalued. This is because, a low ROE would show that Tesla is not generating a lot of income relative to the amount of shareholder investment. Tesla’s ROE was -18.23% in March 2019.

Find out more about fundamental analysis

How to trade Tesla shares

Trading Tesla shares is slightly different to investing in them because you won’t own them outright. Instead, you are speculating on the direction in which Tesla’s share price will move. You would go long if you expect that the price will rise, and go short if you expect that the price will fall. There are two ways to trade Tesla shares – through contracts for difference (CFD).

If you decide to trade Tesla shares, you will be trading on leverage . This means you put down a small deposit – referred to as margin – to get full market exposure. You need to bear in mind that this amplifies your exposure, as your profit or loss is based on the full size of your position, not the deposit.

Learn more about leveraged trading

Trading Tesla with CFDs

A CFD is a contract where you agree to exchange the difference in the price of Tesla stock from when you open your position to when you close it. To go long on TSLA shares, you would buy the market. To go short on TSLA shares, you would sell the market.

Source

1. Tesla, 2013