Tesla’s growth has been outstanding. From its IPO offered on June 29, 2010, the shares of the electric-vehicle and sustainable energy company have risen as high as 14000%.
Despite the ascent, a risk exists even with the best-performing businesses. So, to avoid taking the wrong decision with investments, it’s essential to go through the threats carefully. In this way, you would be able to recognize the key trends that can prevail in future.
With this in mind, here are reasons why Tesla’s stock may be susceptible to a fall in the years ahead.
Anticipations with Model 3
It may be thought as an irony to say that expectations are more with Tesla. By 2018, the company plans to boost the production of its new model with 10,000 automobiles every week. It’s anticipated that the count would rise to 1,500 in the third quarter.
According to the CEO, Elon Musk, the annual demand could above 700,000 units. But there are many factors that could lead to the shortage of such lofty projections.
Massive sedimentary rocks discovered in USA and new trends in fracking technology have led to abundant oil. Whenever there’s an increase in the oil supplies, gasoline prices tend to drop down. This becomes a great challenge for electric-vehicle manufacturers. After all, they seek a hike in the demand when gas prices help to barter electricity for fuel. Therefore, if oil prices fall down again, then the demand for Tesla’s vehicles would become less. This would be much away from the expectations of several investors.
Even if demand is more with respect to electric vehicles, there’s no assurance whether individuals would buy models of Tesla. General Motors was able to cater nationwide in August and is contented with record deliveries. Another EV company, Nissan is launching Leaf this month with amazing features and a new look. Besides, Ford is improving the electric-car program in China with the evidence that the titan has plans to stay ahead in the fierce competition observed in the global EV arena. Aggressive competition can make it tough for Tesla. The company would not be capable to meet the sales target with the passage of time. Moreover, the increasing supply of electric vehicles could impact pricing power and margins related with Tesla.
Through the years, Musk has been the heart and soul of Tesla. The Chief Officer has guided the company even when there were insurmountable challenges on its way. Further, if Tesla grabs the opportunity to meet business goals, then Musk would always be there to support.
CEO of Motley Fool, Tom Gardner said that Musk is known as a superhero never imagined on earth. Zappos CEO, Tony Hsieh said that Musk is the smartest person that he has ever met. Moving ahead, Alphabet CEO, Larry Page stated that he would consider handing over his personal estate because of Musk’s ideas to transform the world.
The leader of such repute can’t be replaced by anyone else. Fortunately, Musk put forth the intention of been actively involved with the company for the rest of his life. Yet, if an unexpected incident doesn’t allow Musk to serve as the CEO, then the company’s stock price may fall down.
Based on the conventional metrics, Tesla’s valuation is on the higher side. According to Yahoo Finance, Tesla’s price-to-sales ratio is 5.78 as compared with 0.32 recorded for General Motors, 0.29 with Ford, and 0.35 with Nissan. While the price-to-book ratio for Tesla is 11.47, it’s very much low with General Motors, 1.48 with Ford, and 0.90 with Nissan.
Tesla is way beyond and different from a traditional company. No other organization can be compared with the sustainable-energy company. Even then, few investors argue that Tesla’s stock bears a high price. In fact, hedge fund managers like David Einhorn believe that the stock is now at bubble levels.
Thus, if Tesla had to disappoint investors in case of Model 3 sales falling short of estimates, then the shares might be difficult to deal with. Besides, with premium-priced stocks, a pullback may give rise to a downturn in the stock’s price.
Apart from everything else, if competition starts to slow down Tesla’s sales growth or affect margins, then premium investors would be willing to pay for the stock which might vanish. Such a scenario would then lead to a dip in Tesla’s stock price and eventually result into losses for shareholders which can be tough to cover up.
10 Stocks Apart From Tesla
When intellectual minds, David and Tom Gardner have a tip for a stock, it’s better to listen. Finally, they have managed the newsletter for more than 10 years. This is nothing but Motley Fool Stock Advisor that’s flourished in the market.
Tom and David just said that it’s better to buy some other stocks right now and Tesla is not included in the list. According to them, the stocks are worth the purchase.