TSLA

Tesla, Inc.

697.99
USD
-5.00%
697.99
USD
-5.00%
620.46 1243.49
52 weeks
52 weeks

Mkt Cap 700.97B

Shares Out 1.00B

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Should You Buy Tesla Stock? 3 Questions To Consider First

Summary Tesla has been one of the most successful investments over the last 5 years, gaining over 950%. The stock is down more than 45% from highs, making it appear enticing. There are a few questions investors may want to consider first. TSLA Stock Key Metrics Tesla's (NASDAQ:TSLA) rise has been nothing short of phenomenal. It's hard to believe that just ten years ago, in 2012, revenues hadn't even crossed the $1 billion mark. Revenues have soared, and 2021 saw a 71% increase over 2020. Q1 2022 was even more impressive, with total sales growth of 81% year-over-year. Margins are increasing as the company scales, which is a terrific sign of profits to come. The increase in margins means that Tesla is not sacrificing profits for growth - it doesn't have to at this point. The company is also scaling up vehicle production and deliveries. Supply chain issues are nagging the company, especially at the Shanghai plant, causing concern. Lockdowns in China have not helped either. These issues are well covered on Seeking Alpha and elsewhere. On the surface, the news appears to be primarily positive; however, the stock cannot be judged in a vacuum. The stock is swooning, and investors may consider a few issues before buying the dip. Elon Musk's bid to purchase and privatize Twitter (TWTR) has been a gigantic story. I have recently written in more detail about this here. The deal has now denigrated into a seemingly daily tit-for-tat. That businesspeople feel the need to constantly make public the deal's inner workings is unbecoming yet wholly harmonious with the general Twitter dynamic. It's mildly entertaining theater. It's tiresome. And it's probably not positive for Tesla stock. The issue may be more profound. Many have questioned whether this wandering eye from Musk is a distraction that will affect the leadership of Tesla. Now would be a terrific time for a laser-focused Musk to push Tesla to the next level. After all, competition is coming. Musk has clearly heard these concerns as he recently tweeted that "Tesla is on my mind 24/7." The fact that this needs to be said at all is concerning. Even if it is true, the appearance of a company's leader being unfocused can be damaging. No one needs to ask whether Tim Cook or Satya Nadella, the CEOs of Apple (AAPL) and Microsoft (MSFT), are fully engaged. There are other rumblings as well. Tesla was ousted from the S&P 500's ESG Index. This is not a big deal. In fact, this news would register with only a tiny fraction of investors if left alone. On cue, Musk felt the need to respond to this nonstory by making it front-page news with ((you guessed it)) a tweet! A billionaire investor and one of Tesla's largest individual shareholders calling for an "immediate" announcement of a stock buyback program doesn't exude confidence. And finally, the news broke on Friday of a flight attendant allegedly paid to settle a sexual misconduct allegation. Musk immediately responded with a provocative tweet in his defense. I won't belabor this as the facts are in dispute. But it is another potential distraction. Individually, these may have little bearing on Tesla's performance; however, there seems to be a tremendous amount of drama and uncertainty - and the stock market loathes uncertainty. In sports, we sometimes say, "there is too much noise surrounding this team." In other words, the team is talented, but the constant off-field drama causes distraction and underperformance. Will inflation outweigh increased demand from rising gas prices? Wait. Aren't these essentially the same thing? After all, rising gas prices contribute massively to the increased costs being felt by consumers. Even though high gas prices could spur people toward electric vehicles, rising costs economy-wide, including gas, could hurt consumers' ability to afford new cars. It’s like a teeter-totter between increased electric demand due to high gas prices and reduced consumer spending due to inflation. The chart below suggests that inflation is heavier. Many people will simply hold on to their existing vehicles longer. These vehicles may have super low-interest payments or, better yet, be paid off. As shown below, consumer confidence, a terrific indicator of consumer spending, has cratered. Just as it looked like sentiment would climb out of its pandemic hole, inflation has hit like a bomb, as shown above. Will competition eat into Tesla's competitive advantage? The auto industry has been behind the curve on electric vehicles for years. Tesla has been making hay in a sector that stubbornly stuck with its legacy products for years while dedicating token spending to electric vehicle R&D. Not anymore. Tesla is facing increasing competition from numerous fully electric vehicles from multiple manufacturers. Ford (F) is investing $22 billion over the next few years to electrify a significant portion of its fleet. According to Bloomberg, Mercedes-Benz (OTCPK:DDAIF), Volkswagen (OTCPK:VWAGY), and Ford have all set targets that at least 40% of their U.S. sales will be electric by the end of the decade. General Motors (GM) has an aspiration to have an all-electric fleet by 2035. And the list goes on. The days of Tesla being essentially the only all-electric game in town are ending. At the same time, the number of consumers purchasing electric cars and trucks will also skyrocket, so there will be a larger marketplace. Competition is by no means a death knell for Tesla. Not even close. But it will require focus and determination to continue its superb performance. Tesla will hold its shareholder meeting in August, where the company plans to enable another stock split. The last time the company announced a stock split, the stock skyrocketed, only to come back to Earth in the days following the split, as shown below. This time, the marketplace is much less favorable. Many see Tesla's recent drop as an excellent opportunity to purchase shares. The company's performance has indeed been impressive. But stocks don't exist in a vacuum. Investors should consider critical questions before leaping. This article was written by My philosophy is to invest in equities with focus on companies which produce generous amounts of positive cash-flow and have growth opportunities to benefit medium to long-term investors. I have a diversified portfolio including growth and value equities, REITs, dividend stocks, and like to use options for income when the opportunity arises. I have over 15 years of experience in the market. I am a practicing CPA, however I have learned about investing more from avid reading, market watching, experience, and of course making mistakes over the years. Also, am an admitted Excel junkie. I try to remember Mark Twain's wisdom: "It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so"Thank you very much for reading and please feel free to leave me a message in the comments or send a private message. All the best! Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Comment

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