Tesla has been on a roller coaster ride of market sentiment in recent years, but the electric car company is starting off the new decade on a high note.
The company is not only Americas most valuable automaker, its now worth more than Ford and GM combined.
Teslas valuation has already surpassed the $100 billion mark a significant milestone for a company that produces a fraction of the vehicles of its direct competitors.
Heres a comparison of the top selling models in the U.S. for Ford, GM, and Tesla.
A quick glance at this list is revealing. Though Teslas Model 3 put up strong sales numbers, its still only a small percentage of vehicles sold by U.S. automakers.
So, whats driving Teslas meteoric growth, and is it sustainable? Below, well take a high-level look at the bull and bear cases for the company.
Tesla posted losses of $1.1 billion in the first half of 2019, but since then, the company has turned the situation around in dramatic fashion.
The automaker had a surprising third quarter with not only record deliveries of 97,000 cars, but also a profit of $143 million. Deliveries broke yet another record in Q4 2019, totaling 112,000 vehicles. These announcements helped improve market sentiment, sending the companys stock back on an upward trajectory heading into 2020.
Here are three reasons some analysts and media are still bullish on Tesla:
For a long time, foreign companies looking to manufacture products in China couldnt do so without working through a domestic partner. Recently though, Tesla became the first major benefactor of a policy change, becoming the first wholly foreign-owned automaker in China.
Gigafactory 3 in Shanghai was completed in October, and was built in just 10 months an impressive feat. Furthermore, cars have already begun rolling off the assembly lines, as Tesla targets an annual production of 150,000 Model 3s.
Perhaps the best part for a company with historically volatile earnings: Tesla claims the facility was 65% cheaper to build than its production plant in the U.S.
2019 saw many of the more established automakers take their first swings at Tesla.
The United States Environmental Protection Agency (EPA) handed out official range ratings for several new electric cars, but none could unseat the king:
Few CEOs capture the attention of media quite like Elon Musk. While his actions can sometimes have unintended consequences for the company the infamous funding secured tweet, for example Elon Musks massive reach allows the company to sell vehicles without spending a dime on advertising.
By contrast, in 2018, Ford and GM spent $2.3 billion and $3.1 billion respectively on advertising in the U.S. alone.
While the second half of 2019 has given Tesla bulls much to celebrate, many investors are remaining vigilant, if not skeptical.
Tapping into the worlds largest EV market is a double-edged sword for Tesla, as they face an onslaught of domestic and foreign competitors.
The Chinese government has also generously supported its own EV industry, handing out over $60 billion in subsidies to over 400 companies. Tesla will be competing against state-owned enterprises like BAIC, one of the largest players in the Chinese EV market.
Western automakers are also gaining a foothold in China as well. Volkswagen and its Chinese joint-venture partner, SAIC Motor, will begin producing cars at two factories in China in the autumn of 2020.
The German automotive giant has also forged partnerships with Chinese battery manufacturers, including Chinas biggest battery company Contemporary Amperex Technology (CATL).
Tesla has an extremely high premium on earnings when compared with its more established counterparts in the auto industry.
The enterprise multiple (EV/EBITDA) measures the dollars in enterprise value for each dollar of earnings. The ratio is commonly used to determine if a company is undervalued or overvalued compared to peers.
Of course, Teslas future will be dictated by variables more complex than can be summed up in a tidy pro/con list.
Musk has shown a willingness to sacrifice profitability in the name of growth Tesla has yet to prove it can deliver consistent, quarterly profits.
Its hard to be profitable with that level of growth. We could slow it down, but then that would not be good for sustainability and the cause of electric vehicles.
After reporting a record number of deliveries in the final quarter of 2019, theres no doubt that true believers and short sellers alike will be watching the companys January 29, 2020, earnings call with much anticipation.
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