Should you invest Tesla stock now, the question that all retail investors ask themselves again and again with a lot of reading and searching about the company. Tesla is a highly vertically integrated company starting from vehicle design to manufacturing, maintaining, and providing loans and insurance directly to customers to buy its products.
The company also offers products that can be installed at home to charge your vehicle as well as keep the home cool. The products such as Solar roofs, Solar panels, Heat pumps, and PowerWall are well known globally and particularly in the US.
Tesla Inc reported better-than-expected results for Q4 2022 during the first quarter. The company has a strong global network of Tesla Superchargers – industrial-grade, and high-speed vehicle chargers.
Tesla is also one of the leading manufacturers of energy storage that powered electric vehicles (EVs). Let us discuss the Porter five forces of Tesla Inc.
Invest Tesla stock – What is Global EV Market Size
Global Electric Vehicle sales are expected to grow significantly by 2030 at a CAGR of 29% from 2020. In 2020, the total EV sales were 2.5 million vehicles which are expected to reach 11.2 million by 2025 and 31.1 million by 2030. EV cars would secure about 32% of the total car sales by 2030. That is the reason why, Tesla has an aggressive target of 20 million vehicle production by 2030.
China is like to 49% market share of the global EV market followed by Europe with 27% and the US with 14% of the global EV market. As a strategy, Tesla has announced a new Gigafactory in Shanghai, China to capture the increasing market there. The company is currently focused on increasing vehicle production, capacity, and delivery capabilities, reducing costs, and improving and developing battery technologies.
Tesla will be one of the best EV stocks by 2025 and 2030. The company has already strong models with premier design and an integrated supply chain. That will give it an edge over its competitors to scale up even with a price cut.
Recommended Studies for you on Tesla Inc. – How Tesla position itself in the Global EV Market,; Tesla Inc Integrated Ecosystem, and tesla-stock-price-prediction-2025-company-to-invest-in.
Tesla Inc Financial Performance
Considering the 2030 goal of the company, Tesla planned to increase the capital expenditures to between $7.00 to $9.00 billion in 2023. The capital expenditure would be higher going forward to make the company vertically integrated.
The total quarterly revenue of the company has increased by 24% from $18,756 million on March 31, 2022, to $23,329 million on March 31, 2023. While the total cost of revenue has increased by 42% that affected the total gross margin. There will be a near-term impact of an uncertain macroeconomic environment, in particular, with rising interest rates.
The company has registered 51% of YoY growth in revenue annually, from $ 53,823 million in 2021 to $ 81,462 in 2022. While total profit has gone up by 53% from $ 13,606 in 2021 to $ 20,853 in 2022, the free cash flow increased by 51% from $ 5,015 to $ 7,566 during the same time.
Looking at the longer perspective, the operating margin consistently improved from approximately negative 14% to positive 17% from 2017 to 2022. This margin expansion was achieved through the introduction of lower-cost models, the buildout of localized, more-efficient factories, vehicle cost reduction, and operating leverage.
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Tesla porters five forces analysis
- The Threat of New Entrants:
- The threat of new entrants in the electric vehicle market is moderate. This industry needs a long learning curve. Early-entrant companies will benefit from this learning curve.
- The barriers to entry are high due to the significant capital investment required to establish a manufacturing and distribution network. Additionally, established automakers have been slow to enter the market but may do so in the future.
- Tesla Inc has been in this game from the beginning of EV manufacturing. Tesla is one of the pioneers in terms of Electric vehicles.
- The company has an integrated supply chain which is difficult to break by a new entrant.
- Bargaining Power of Suppliers:
- The bargaining power of suppliers is moderate to high.
- Tesla depends on a limited number of suppliers for key components such as batteries, and these suppliers have significant bargaining power due to the high demand for their products.
- Tesla has attempted to mitigate this risk by investing in its battery production facilities.
- However, the company needs battery materials from other suppliers, though OEMs have superiority in terms of bargaining power.
- Bargaining Power of Buyers:
- The bargaining power of buyers is low to moderate.
- Tesla has a strong brand and reputation in the electric vehicle market, and customers are willing to pay a premium for its products.
- However, as the market becomes more competitive, other established players are entering the market with low prices, and buyers may have more bargaining power to negotiate prices and features.
- That is the reason, Tesla has announced a price cut on all its models in April 2023 to generate higher demand.
- The threat of Substitutes:
- The threat of substitutes for electric vehicles is low.
- While traditional gasoline-powered vehicles remain a significant portion of the overall automotive market, the trend toward sustainability and the growth of the electric vehicle market suggest that the threat of substitutes will continue to decrease.
- The Intensity of Rivalry:
- The intensity of rivalry in the electric vehicle market is high.
- Tesla faces competition from established automakers such as Ford and General Motors, as well as emerging startups such as Rivian and Lucid.
- Additionally, the market is likely to become more competitive as more companies enter the space.
- However, the direct-to-consumer sales model gives the company more control over its relationship with its customers. This also helps to generate a higher profit margin since there is no dealership share of the profits.
Overall, Tesla Inc faces significant competition in the electric vehicle market, and its success will depend on its ability to continue innovating and developing new technologies. The company has taken steps to mitigate risks related to supplier bargaining power and establish itself as a leader in the market but will need to navigate ongoing challenges related to production costs, supply chain management, and regulatory compliance.
Experts have different opinion on invest Tesla Stock. Despite a recent fall in the stock price, year to date, Tesla’s stock is still up 24%, compared to a 5.6% advance for the S&P 500. Jefferies analyst Philippe Houchois downgraded Tesla Stock from ‘Buy’ to ‘Hold’ and reduced the price target from $230 to $185. Cathie Wood of ARK Investment is continuing its strategy to invest Tesla Stock while defying Wall Street to make whopping $29M purchase. Tesla Inc is a long term buy now.
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