Tesla faces fierce competition from lower-priced rivals that threaten demand declines and put strain on profits.
Long-term growth-focused investors can maximize the company’s price growth and profit generation potential over the long term, although investors should wait at least ten years until its profitability.
Risks and Rewards
TSLA could become the global next-gen energy company of choice by 2030 if all goes smoothly in its transition from an electric vehicle company into global next-generation energy provider; at current prices however it still represents an immense risk.
The company faces significant operational and financial risks. Its relatively inexperienced market position leaves it exposed to competition from established automakers with superior technologies; while its high cost structure and low profitability margins raise EPS risks. Furthermore, its balance sheet is under strain as it attempts to fund capital spending plans and production plans.
Tesla employees can reduce risk by investing their options and RSUs through an ESPP plan. Be mindful of vesting schedules and restrictions of these grants before accepting them; Emily recommends working with an advisor to understand these equity compensation vehicles. ESPP contributions remain tax-deferred until exercised; until then they’re free to fluctuate with stock price fluctuations.
Tesla stock has garnered significant scrutiny due to its sky-high valuation – more than $750 billion according to some estimates, and its shares have appreciated by 160% this year alone.
But analysts remain cautious that Tesla’s growth story could unravel over time, particularly due to deteriorating margins.
Recently, Tesla has been forced to reduce prices on its electric vehicles to stimulate demand and counter economic headwinds – leading to significant erosion of gross margins.
Concerns are compounded by reports that the National Highway Traffic Safety Administration will launch an investigation into Tesla’s driver-assistance systems Autopilot and Full Self Driving (FSD). As a result, many analysts consider Tesla overvalued. David Trainer of investment research firm New Constructs thinks it should only be worth $26 per share based on its most recent earnings report, or roughly one tenth of Thursday’s closing price.
While Tesla Stock (TSLA) provides an attractive long-term investing thesis, as an EV market leader it faces fierce competition from traditional automakers as well as new entrants, with price wars impacting unit economics and reducing profit margins for Tesla.
Margins should expand as the company reaps the benefits of economies of scale and operating leverage as deliveries increase, according to ARK Invest’s team. Revenue from potential robotaxi and energy storage businesses will also contribute towards expansion.
Even amid such challenges, Tesla remains poised to remain the market leader in electric vehicle technology for an indeterminate amount of time. Accordingly, long-term investors should strongly consider adding shares of Tesla (TSLA) to their portfolios for maximum exposure via the ARK Disruptive Technologies ETF (ARKQ). Learn more and start your free trial now.
Prior to investing, one of the most essential steps you can take when selecting stocks is determining your time horizon. Aim for at least three-to-five years so that if it tanks you won’t be locked into holding it.
Starting your journey can be as straightforward as opening and funding a brokerage account and selecting Tesla (TSLA). From there, you have two order entry methods – market or limit order; limit orders can enable you to specify what price per share you’d be willing to pay and potentially lower risk.
Before investing any funds, be sure to have set aside an emergency fund and made progress toward other financial goals. Also consider how much of your portfolio you want to devote to one company like Tesla; most experts advise limiting it to no more than three-to-five percent; this strategy known as diversification helps protect investments against major losses.
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