Tesla has been one of the most popular stocks in the U.S stock market in recent times. The company had a trailblazing 2020, with its share price appreciation by over 700%. The high momentum in the stock is driven by the influx of retail traders seduced by the company's disruptive technology that made it appealing to both investors looking for value and growth. We have created this post as a guide for those interested in buying Tesla stock.
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Learn How to Buy Tesla Stocks in 3 Easy Steps
Find a Broker
Tesla can be traded through all brokerage firms with access to the US stock market. Although the choice of a broker depends on personal and investing preferences, there are features, such as fees and security which investors must consider before choosing a broker
Analyze the Tesla stock price chart
It is necessary to study the stock’s price charts and use technical indicators to know the right price range to enter a position or exit the stock. The timeframe of the chart depends on your trading/investment horizon.
After you have identified a potential entry point based on your analysis of the price chart, you can go ahead and place your trade. However, it is important to also account for potential losses and have a stop-loss target to minimize your losses if the share price slips.
Tesla company overview
A lot of people think of Tesla Inc. as an electric vehicle manufacturing company, but this is just one segment of the technology company; the second is its energy generation and storage unit. The Automotive segment is focused on the design and manufacture of electric vehicles, as well as sells automotive regulatory credits. The energy generation and storage segment focuses on battery energy storage, manufacturing and installation of solar panels, and other related products and services.
The company is famed for its electric cars, which are ranked the best in the world. Tesla controls 16% of the EV market space and 23% of the battery segment space.
Global vehicle sales for Tesla in 2020 increased by 35.8% on an annualized basis to 499,550 units. In 2020, the company surpassed the 1 million mark of electric cars produced.
Tesla's Model 3 which was launched in 2015, is the world's all-time best-selling plug-in electric car, with more than 800,000 delivered as of December 2020.
Tesla business model and revenue streams
Tesla has two segments through which it generates revenue: the automotive segment and the energy generation segment. On the surface, the company’s revenue source may seem diversified. In reality, Tesla has been dominated by a single revenue stream all these years, and that dominant revenue stream has been nothing more than the automotive sales revenue.
Tesla's automotive sales revenue consists of revenue streams from multiple segments, including new vehicle deliveries, the use of Superchargers, and the sale of regulatory credits.
The energy segment, on the other hand, generates revenue from the design, manufacture, installation, sale, and leasing of solar energy generation, energy storage products, and other related services to residential, commercial, and industrial customers.
Tesla’s automotive sales contribute about 80% of its revenue and almost 100% of its gross profit. Tesla posted its first annual profit in its 2020 fiscal year (FY), which ended December 31, 2020. It was a significant milestone for the electric vehicle maker after reporting a loss in each of the last five years.
In the last 6 years, sales in the automotive segment sales have been explosive, reaching as much as $26 billion on an annualized basis in Q4 2020. The segment posted a gross profit of $6.6 billion in FY 2020, up 70.5% compared to the previous year. Revenue rose 28.2% to $29.5 billion.
However, the expansion of Tesla’s other business units has seen an increase in revenue from the energy storage segment, but this still pales in comparison to what is being generated by the automotive sector.
The energy generation and storage segment posted a gross profit of $18 million in FY 2020, down 90.5% compared to the previous year. Revenue for the segment rose 30.2% to $2.0 billion
In fact, given the company's growth trajectory and outlook, the automotive segment would continue to be a dominant income stream for Tesla when its newly launched Model Y goes mainstream.
History of Tesla
Tesla was founded in 2003 by two engineers: Martin Eberhard who served as its CEO and Marc Tarpenning who served as the CFO. The company was named after the 19th-century inventor Nikola Tesla, who is best known for his work on AC current.
Tesla was created to develop and produce an entirely electric car, partly inspired by the favorable reaction General Motors received for its electric car experiment the EV1. GM ran an electric car program between 1996 and 1999, producing a limited number of cars that were never released for public purchase. The test was generally considered successful from an engineering standpoint.
Musk joined Tesla in 2004, becoming the chairman of its Board of Directors after he invested $30 million into the company. In 2008, they launched the Roadster, becoming the first company to produce an entirely electric car that could arguably meet consumer needs.
In October 2008, Musk took over as CEO of the company after a leadership tussle that saw Eberhard and Tarpenning being forced out of the company they founded. This resulted in a lawsuit against Musk and Tesla, which was later dropped that year.
In 2009, Tesla underwent dire financial constraints, which made it sell 10% of its stake to The Daimler AG (DDAIF) or $50 million and borrowed another $465 million from the Department of Energy. The company’s need for short-term capital, including high borrowing costs, made it go public in 2011 under the ticker TSLA. The stock opened at $17 a share, and the company raised $226 million from the IPO.
In 2008, Tesla brought down the cost of its Model S sedan by 25%, and in 2012, it opened its first charging stations, called Superchargers, which offered free charging to Tesla owners and is faster than using a common wall outlet.
It was in 2014 that Tesla announced its Gigafactory in Nevada after it posted its first quarterly profit a year earlier. This is the Gigafactory that makes the batteries that power its devices and is considered crucial to its entire business model. This reduces the cost of production and also vertically integrates battery production into the operations of Tesla.
In 2015, Tesla introduced a new line of solar energy products designed to power homes and businesses through rechargeable batteries. The company, in 2017, changed its name from "Tesla Motors" to "Tesla Inc." to cover the full scope of its products, reflecting Musk’s desire to create a company that would provide energy solutions across many sectors.
Brokers that offer Tesla shares
Shares of Tesla can be bought from just about any broker online and offline. However, to make it easier for you to choose from a wide range of brokers, we have shortlisted the best brokers offering Tesla stock and listed their various features.
Should I invest in Tesla stock?
Yes, Tesla is one of the hottest stocks at the moment, so you can invest in it if that fits into your investment plan. The stock is still surging higher after the split a few months earlier.
Tesla stock investment potential
Tesla has not lost market share in the EV market and traditional autos have had a really hard time producing a car that’s on par with Tesla in terms of a dollar per performance or efficiency basis. The company is a leader in its industry, developing its own critical infrastructure and gathering more control of its supply chain. Considering Tesla's outlook, the company is positioned for long-term success.
What kinds of investors should include Tesla stock in their portfolios?
Due to its high beta, which implies that it is very sensitive to broader market trends, Tesla's stock seems to be volatile, making it preferable to aggressive investors. Day and swing traders may find the stock appealing because of the opportunities presented by the somewhat sharp price action. The stock gas dropped by as much as 10% and rallied by as much as 19% within a trading session.
However, Tesla also appeals to investors looking for value, though the stock cannot be appropriately seen as such. Its long-term potentials, owing to its disruptive tendencies, make it a stock to hold, as the world is increasingly tilting towards cleaner energy.
How much should I invest in Tesla?
The amount you can invest in Tesla is a function of your economic status, investment timeframe, knowledge of the company, as well as other factors. However, the general rule of thumb is to invest only what you can afford to lose.
How to buy shares in Tesla stock?
Here are the steps you can take to buy Tesla stock:
Step 1: Choose a broker
Tesla shares are only offered through brokerage firms, as the company has not made provision for a direct purchase plan. As such, potential investors have to find an appropriate broker and open a brokerage account.
Step 2: Fund your account
After opening a brokerage account, you can fund the account with the amount you intend to invest with.
Step 3: Purchase Tesla shares
While tapping the buy button may be easy, a lot of work actually goes in before making a decision to purchase a stock. Determining your entry and exit points is crucial, as that could be the difference between profit and loss. As a matter of fact, always have a strategy before trading.
Buy Tesla shares using a broker
To purchase shares, you will need to do so through a broker. If you do not have a brokerage account, you will need to open one. Opening a brokerage account is easy, provided you have all the required information and documents.
Buy Tesla shares with a direct stock purchase plan (DSPP)
Unfortunately, Tesla does not have a direct stock purchase program. The only way to buy Tesla stock is by purchasing it through a broker.
Frequently Asked Questions
Tesla has a lot of growth potential.
Yes, Tesla has a potentially profitable business model, but 2020 was Tesla's first profitable year.
Yes, you can make money trading Tesla.
A trader’s choice of platform depends on a combination of factors, such as trading fees, security, and research tools. So, there is no 'best' platform to trade Tesla shares
Tesla stocks are traded between 9.30 am and 4 pm New York time when the market is open.
Tesla is listed on the Nasdaq