Elon Musk has established a strong competitive position for Tesla with models like the Roadster, Model S, the Model X luxury SUV, and the Model 3, acclaimed for their sportiness, performance, and design.
He has also attracted 85 million followers on Twitter with his maverick comments.
In April 2022, Musk made a successful bid to buy Twitter. Tesla’s market cap decreased by $100 billion the next day, a drop in share price of over 12%.
Investors fear that the involvement with Twitter will distract Musk from his responsibilities at Tesla. He has pledged a considerable number of Tesla shares as collateral to fund the Twitter purchase. If he were to sell this stock, that could precipitate a steep fall in price.
Electric vehicles are getting better and more popular. People spent $120 billion on electric cars in 2020, 50% more than in 2019.
In 2021, electric car sales increased to 6.6 million (2.2 million in 2019), representing almost 9% of global car sales.
All the net growth in global car sales in 2021 came from electric cars. Tesla delivered 310,000 vehicles in Q1 of 2022, up 68% from the previous year.
The demand for electric vehicles continues to increase because people are growing more environmentally aware. Another reason is the skyrocketing price of gasoline. Governments are providing tax incentives to electric car buyers.
About 75% of the electric cars sold in the US are from Tesla. But quality problems are a source of worry.
Competition from traditional car manufacturers like GM and Ford will increase, as they increase their commitment to electric cars. The war in Ukraine and Covid-related shutdowns in China are impacting the supply chain.
The fundamentals of the electric car industry and Tesla’s competitive position look good. In Q1 2022, Tesla’s earnings per share jumped to $3.22 and sales to $18.76 billion. Its P/E ratio was about 1800 at the end of 2020.
Currently, it is only about 138, but still on the higher side. The TSLA share price is $770, down from a 52-week high of $1243.
Any short-term investment decision will depend on the outcome of the Twitter sale.
Musk seems to have second thoughts about Twitter and may opt out of the deal. Tesla shares rose sharply while those of Twitter fell on hearing the news, but Musk may have to pay billions of dollars if he backs out now.
In the long run, Tesla might be a good bet. But there might not be a repeat of the meteoric rise in the stock price from January 2020 to November 2021.
Note: Please do not invest money or assets in the financial markets that you cannot afford to lose. This article should not be construed to be investment advice and is for information purposes only