Tesla Inc. is among the most outstanding auto companies globally. The company is famous for its assembling of electric cars. Tesla has been grappling with losses and performance instability since its launch until 2020. The year 2020 was the breakthrough year for the firm to grow beyond the previous achievements despite the Covid-19 pandemic. In the year 2020, the car making company reported profits amounting to $721 million (Arnott et al., 2020). The much growth in profits gradually from the first quarter to the fourth quarter of the financial year resulted from the increasing demand for electric cars worldwide. Besides, in the last year only, the company saw a sharp rise of stock up to 700%, leading it to be the most valuable auto company globally.
Comparing the Tesla Company to the SPDR S&P 500 ETF Trust (SPY), Tesla's performance surpassed the 13.25% average yearly performance of S&P in 2020 (Arnott et al., 2020). SPY performance is usually based on all the companies' cumulative and average performance making up the organization. Therefore, due to the adverse effects of Covid-19 on many firms, SPY's performance was crumbled and deteriorated. The much difference in performance in Tesla Inc. and SPY was provoked by the fact that Tesla was among the very few companies which thrived despite the Covid-19 consequences. On the other hand, many companies in SPY sank into an economic depression, dragging the thriving firms to lower the overall performance of SPY.
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Previously, Tesla Company could not stabilize due to unfavorable regulatory measures, which favored its competing carmakers. However, today, the company is projected to emerge strong and better after the pandemic. Statistics show that the demand for electric cars by the end of 2021 will be approximately 1 million cars. Therefore, as many companies in the SPY fear death and huge losses due to the pandemic, Tesla hopes to come out better, achieving much more stock than SPY's average performance.
Among the reasons why the stock prices for Tesla are unstable is the controversial prices in its products. Many people have cited that the firm has overpriced its vehicles. The company has valued its cars too high, nowhere near its competitors (Handa, 2020). Consequently, Tesla earns a lucrative revenue on a single sale. This move provides many investors with an opportunity to earn more Returns on Investment (ROE). However, other analysts urge investors to avoid the company at all costs. The allegation is that soon many firms will invest in electric vehicles, and they will sell at lower prices, sending Tesla home and lower its chances of making profits.
As more people learn about electric vehicles, it has come to their knowledge that the future of automobiles will be electronic. Therefore, Tesla is viewed as the best investment for the future hence more people opted to invest in its shares. Additionally, the firm is making profits much more than the eight giant auto companies' revenues. Therefore these abnormal profits have provoked more demand for Tesla's share and, in return, high prices in its stock.
Additionally, the investment in Bitcoin by Tesla brought about controversial discussions which affected its shares. Upon investing in bitcoin and other currencies that seemed much profitable, Musk pointed out bitcoin prices seemed too high. Consequently, the bitcoin price decreased, which also lowered the Tesla share prices. Besides, at least two giant auto companies have set targets to assemble Electric Vehicles (EVs) at reasonable prices soon. General Motors indicated that by 2035, they would be making pure EVs, while Ford noted that by 2030, they would be selling only emission-free vehicles.
References
Arnott, R., Kalesnik, V., & Wu, L. (2020). Tesla, the Largest-Cap Stock Ever to Enter S&P 500: A Buy Signal or a Bubble? researchaffiliates.com. https://www.researchaffiliates.com/en_us/publications/articles/819-tesla-the-largest-cap-stock-ever.html.
Handa, M. B. Constant Rise of Tesla Inc.: Strategic Marketing Plan Leading to Company's Colossal Growth in 2020.
