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Finance & Management
As a manager, I would like to examine the financial performance of Tesla Inc. By conducting financial analysis I would be able to identify the strategy adopted for pricing and trading stocks. I have chosen Tesla Inc. because it is undergoing challenging situation irrespective of its reputation and standing in the automobile industry. I want to investigate if it's profitable for the investors to invest in stocks of the company.
Abstract
Business firms are operating in making revenues and raising profits. To attract investors and creditors the firm needs to earn the entitlement of publically traded on the New York Stocks Exchange. Publically traded companies are more likely to attract investors and creditors by offering them opportunities for earning dividends. The assessment of stock prices and performance of Tesla at NYSE is conducted by considering the research of the Wall Street Journal.
Investment in stocks
The investment in Tesla's stocks is riskier at the moment because the company has undergone a significant sales decline. The performance of Tesla is not satisfactory because the total return in 2019 is accounted for as -33% compared to the 7% rise in 2018 CITATION Phi19 \l 1033 (Doorn, 2019). The findings also state that Tesla recorded the lowest stock prices in 2019. The company has also raised convertible debt and equity of $2.7 billion. The first quarter of 2019 reveals that it was not profitable for investors. The short sellers netted over $1.91 billion and forecasted a further decline in stock price by the end of this year. Tesla is encountering serious headwinds and the development of affordable electric cars had further raised a financial burden on the company. The company is already undergoing challenges that require more financing including a fleet of robot-taxis, cross over, and release of pick up trucks. In the first quarter, the loss stated by the company is $702 million that is accounted for like 41% CITATION Pat19 \l 1033 (Thomas, Goldfarb, & Higgins, 2019). Logistic bottlenecks further affected stock prices negatively.
Company’s position compared to competitors
The dominant competitors of Tesla include Ford Motor Company, General Motors, Toyota Motor Corporation, Honda Motor Company and Navistar. Two main revenue segments of Tesla include automotive sales and development services. The automotive sales reflected a significant increase in 2018 but the development services only contributed to small sales CITATION Cor141 \l 1033 (Cornell & Damodaran, 2014). Traditional car sellers are increasing offerings in hybrid gasoline-electric cars. Tesla the automotive company faced the crisis by adopting a model of ‘manufacturing hell'. The customers claimed that electric cars have serious quality problems. The product was not according to the expectations of the customers. This reveals the defects in the assembly model. Due to serious quality claims the company failed to attain its target of manufacturing 20,000 battery cares CITATION Bla19 \l 1033 (Martin, Clothiaux, & Lund, 2019). It has adverse impacts on the process of manufacturing because the company lowered its target to 2,500 cars by the end of the month and 5,000 by the end of June. It was also revealed that "one current Tesla engineer estimated that 40 percent of the parts made or received at its Fremont factory require rework” CITATION Pau182 \l 1033 (Eisenstein, 2018). The company still needs to improve the performance of electric cars for competing with these prominent players of the vehicle industry.
Growth and profitability
The evidence suggests there has been significant growth of 25,913 percept in sales of Tesla for the last six years. growth aspects are visible as the company managed to deliver 80,142 vehicles in 2018 compared to the delivery of 321 cars in 2012. However, the growth prospects declined in 2019, reflecting low profitability CITATION Phi19 \l 1033 (Doorn, 2019). Investing
Price-to-earnings ratio
The PER of Tesla recorded for the year 2019 is -45.88. The ratio is considered by investors before making investments in stocks of the company. This is also used for determining the amount that investors are willing to pay against each dollar earning. The current share price of the company relative to earnings per share is known as Price-to-earning ratio. The relative value of a company's shares is estimated through this ratio CITATION Phi19 \l 1033 (Doorn, 2019). The low ration depicts that the investors are not satisfied with the performance of Tesla and they are least willing to make future investments.
Dividend Yield
The dividend yield of Tesla in 2019 is $0.00 in 2019. The dividend yield is the dividend per share of the company. The annual dividend relative to share price is known as dividend yield CITATION Pat19 \l 1033 (Thomas, Goldfarb, & Higgins, 2019). High dividend yield reflects the financially stable position of the company. This is more effective for attracting investors and depends on growth potential. Dividend yield of Tesla is low because the company has experienced a significant loss due to the manufacturing issues of electric cars. This also suggests that investing in the company's stocks is not favourable for the investors and creditors. This will cause investors to reinvest dividends in NYSE.
Future prospects
The company has taken serious steps for resolving technical issues of electric cars. The best strategy adopted by Tesla was to lower its production from 20,000 to 2,500. This gives adequate time for testing the performance of the developed cars. Other strategies that the company considered for addressing the issues include resolving discrimination, talent shortage and retaliation. To further overcome the manufacturing problems the company emphasized on rework on the defected part.
Recommendations
I don’t recommend to invest in the stocks of Tesla because the company is already undergoing a crisis. The low price-to-earnings ratio depicts that the company is lacking the capacity to pay back to its investors. Similarly, the low dividends yield also reflects the unstable position.
References
BIBLIOGRAPHY Cornell, B., & Damodaran, A. (2014). Tesla: Anatomy of a Run-Up. The Journal of Portfolio Management Fall, 41 (1), 139-151.
Eisenstein, P. A. (2018). Tesla under fire after quality issue allegations and the loss of senior executives. Retrieved 03 11, 2019, from https://www.nbcnews.com/business/autos/problems-are-piling-tesla-quality-issues-mount-executives-flee-competition-n856946
Doorn, P. V. (2019). Here are the stock market's winners and losers in the first half of 2019. Retrieved 06 30, 2019, from http://www.marketwatch.com/story/here-are-the-stock-markets-winners-and-losers-in-the-first-half-of-2019-2019-06-28
Martin, B., Clothiaux, C., & Lund, P. (2019). Driving off a cliff: A case against Tesla. The Economist.
Thomas, P., Goldfarb, S., & Higgins, T. (2019). Tesla Stock Hits Lowest Level Since 2016 as Car Maker's Outlook Debated. Retrieved 06 30, 2019, from https://www.wsj.com/articles/tesla-stock-hits-one-year-low-as-analysts-weigh-car-makers-outlook-11558367180
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