Written by Sergeo Domtchenko
Flashback to mid-February and Tesla’s share price was soaring into the stratosphere as they hit a new record high of $917. It was fair to say that Tesla’s share price was in the overvalued territory. The significant backing behind the automotive giant was proving analysts wrong time and time again.
However, the fairytale story is over for now, as the coronavirus fear is wrenching Telsa back down to its January share price of $480. We covered an article on Tesla back when the fear pulled the stock down to $600. However, as COVID-19 restructures the digital economy and with the virus now having severe long-term economic impacts, a Tesla update was a no brainer.
Today we are discussing why Tesla made headlines last week and whether they are worth the investment?
Why Tesla made headlines last week?
1) Manufacturing Speaks Volumes
Despite the closure of multiple production plants, particularly in China and New York, Tesla still manufactured over 100,000 cars in Q1 2020. Tesla was successful in finding new homes for 88,400 cars.
In turn, Tesla sales were up 40% in comparison Jan-March 2019. Still, they were down 21% in respect to their record-breaking sales between October-December 2019.
Meaning, while car sales across the industry were down, Tesla still manufactured and sold a respectable amount of cars all in the face of global lockdowns.
However, according to Wedbush Securities analyst Daniel Ives, “it was a small victory in a dark environment,” especially considering the overall impact of the coronavirus on Telsa’s production.
2) Model 3 Sales Skyrocketed
Despite the coronavirus wreaking havoc on the automotive industry, the Tesla model 3 climbed to the 7th top-selling car in the US for Q1 2020. Which is a significant achievement considering model 3 was 13th back in Q1 of 2019.
3) ‘Ventilator’ Mismatch
Despite the promising manufacturing volumes and sales data above, Tesla received a considerable amount of criticism surrounding the donation of ‘non-invasive ventilators’ to hospitals in need.
After donating 1000 “extra FDA-approved ventilators”, it turned out that Tesla shipped out machines more closely related to Continous Positive Airway Pressure (C-PAP) devices.
While C-PAP devices help people with respiratory conditions, they have proven to be ineffective for people that are displaying critical COVID-19 symptoms. Because they do not contain tubes that reach the lungs of a patient.
Elon Musk defended his decision as he argues invasive ventilators are, for the worst case, patients who have a low survival rate.
Invasive ventilators are for worst case patients. Survival rate at that point is low, as Gov Cuomo has pointed out. Nonetheless, we start delivery of intratracheal Medtronic units in NYC tonight.
— Elon Musk (@elonmusk) April 2, 2020
Is Tesla worth the Investment?
Before I start, I am obliged to remind our viewers that this is not advice, only general commentary from my extensive research in this area.
While I am a fan of what Elon Musk is trying to accomplish for our planet, investing in Tesla holds huge short term risk.
Tesla is not renowned for impressive financials. During the 2018-2019 financial year, Tesla reported a net loss of $862,000 (USD), a ROE of -13%, and an EPS of -$5.72.
To add insult to injury, Tesla’s D/E ratio is extremely high, sitting at 405.6%. While it is an improvement from 487.1%, investors would expect Tesla to acquire less debt to de-risk their investment. Moreover, Tesla reported a P/E ratio of -2745.7. In turn, indicating that Tesla cannot grow revenue and overall financial stability significantly.
Moreover, the current oil war between Russia and Saudi Arabia is causing Crude oil to plummet. According to CNBC, when Crude oil prices decline, EV stocks generally lose value in the short term. Thus as the value of oil depreciates, Tesla will likely suffer even more short-term losses.
In saying all that, yes, Tesla does hold short term risk but is also a long-term investment. The future impact of the coronavirus on Tesla remains uncertain, ultimately creating the apprehension. I would personally hold off from purchasing Tesla shares from a financial standpoint.
However, what is certain is that Tesla will radically change our future for the better. It is the future benefit of Tesla that is pushing them into the overvalued territory. Thus, making it extremely difficult for investors to put their finger on the best price for an investment.
Once the virus fizzles out, I would not be surprised if the extreme investor backing behind Tesla returned.
Here is our free, uncomplicated, and extensive ASX portfolio
- Could these micro-caps provide an upward return of 500%
If you enjoy our articles or are wanting to learn more, you can subscribe to us for free via email and get updates when we post new articles. From all of us at YIG, thank you for the support.
The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Sergeo Domchentko, Associate of YIG.