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Why is Tesla Stock So Volatile?
The fluctuating fortunes of Tesla stock (TSLA) in early 2021 had investors deeply concerned over the future of innovator par excellence, Elon Musk and his ambitious projects. A visionary CEO, Musk routinely generates significant media attention by way of his tweets, insights, and projects. His big, bold ideas are the stuff of sci-fi fantasy. Yet some of them actually translate into tangible realities with functional value. A genius by any stretch of the imagination, Tesla founder Elon Musk endures the wrath of stakeholders in the financial markets. This is especially true when macroeconomic variables sour. Yet, the reasons for Tesla’s volatility were unrelated to the company’s actual performance. Fundamentals were strong in March 2021. At the time of Tesla’s price correction, US markets were concerned over rising interest rates. As it turns out, low-growth stocks are largely immune to higher interest rates; it’s the high-growth stocks that tend to suffer the most. Why? Because big earnings are derived a long way down the road. When interest rate hikes are factored in, future earnings potential has to be discounted for the inflationary effect. This diminishes the company’s prospects, and degrades the stock price for investors and traders. What happened heading into March 2021 was precisely that. Investors adopted a risk-off approach to Tesla and sold off en masse. They feared the negative impact of inflation on company profitability. Of course, much of what unfolds in financial markets is speculative in nature. The mere threat of inflation is enough. Economists have crunched the numbers, and ascertained that a modest interest-rate hike of 1% would crash Tesla’s market valuation to the tune of $200 billion, eroding future price targets by a long margin. Such musings are commonplace with market participants. This is particularly true with high-growth stocks like Tesla which broke into the S&P 500 index in December 2020.
Forecasters have been hard at work with their Tesla price prognostications. If support levels start to give way, the price of Tesla stock could dip precipitously, and result in a waterfall-style decline. Prices could reverse as traders buy on the dip, believing in the future of Tesla and its green energy initiatives. Regardless, South African traders have carte blanche to trade Tesla stock with CFDs at AvaTrade SA. These derivatives trading instruments do not require traders to purchase the underlying asset itself. Rather, Tesla CFD traders simply buy the contracts with bullish or bearish expectations. There are real concerns that the $1.9 trillion stimulus in the US could accelerate inflationary concerns, thereby sealing Tesla’s fate by discounting the value of future cash flows to account for potential interest-rate hikes. Of all the stocks making the news, few feature as much as Tesla. In 2020 April, Tesla was valued at $30 billion, and by January 26, 2021, it was valued at $849 billion. Where to next for the electric vehicle manufacturer?
Tesla: Focus on Green Energy, Diversity, and Success
Tesla recently broke into the S&P 500, in December 2020, with a 1.69% weighting in the S&P 500 index. At the time it was included in the prestigious index, the Tesla stock price topped out at $695. After achieving quarter after quarter of profitable returns, Tesla’s outstanding performance under visionary giant Elon Musk, finished 2020 stronger than ever before. As a market leading entity, Tesla drives innovation, and trader interest across the board. From around $100 per share in January 2020, to almost $700 per share by the year’s end, Tesla was the star performer in a pandemic-ravaged year.
A big part of Tesla’s appeal is its green energy focus. The forward-leaning company continually pushes the envelope; a quantum leap over and above other car manufacturers. Tesla, like many tech giants, is big on diversity, equity, and inclusion. In 2020, Tesla accelerated its efforts towards sustainable energy, with a focus on collaboration, teamwork, and culture building. These core tenets of Tesla are inherently attractive to traders and investors who see the company as a viable long-term proposition in the tech sector. Tesla is predicated on a people-first and data-driven approach to building and delivering within communities.
With massive investments in communities across the United States, including Austin, Texas, Buffalo, New York, and Reno, Nevada, Tesla is advancing robotics in a way never before seen. As part of its social contract, Tesla focuses on underrepresented communities in the workplace, with advances in Black, Hispanic, and Asian employment. The company also focuses on gender in terms of leadership roles as well. In January 2020, Tesla’s Model Y vehicle achieved an overall safety rating of 5-stars, courtesy of the NHTSA (National Highway Traffic Safety Administration). These glowing endorsements fuel trader demand for Tesla stocks, helping to drive the bullish market that has characterised the stock in recent months.
In January 2021, 2 new models, S and X were launched in the market, with important technological updates.
New Model S & Model X just launched— Tesla (@Tesla) January 28, 2021
Tesla announced its fourth quarter and full-year 2020 financial results in January 2021. The company announced operating cash flow less capex of $2.8 billion for 2020, with $4.9 billion increase in cash and cash equivalents in the fourth quarter, to $19.4 billion. The company had free cash flow of $1.9 billion in the fourth quarter. For the full year in 2020, Tesla generated a 6.3% operating margin. The company achieved year-on-year automotive revenues increase of 46%, a regulatory credit increase of 202%, and automotive gross profit of 56%. For the full year ending December 31, 2020, Tesla’s cash and cash equivalents increased by 209%.
Trade Tesla Stock
In 2003, Tesla Inc., formerly known as Tesla Motors until 2017, was founded by two American entrepreneurs, Marc Tarpenning and Martin Eberhard. At the time, the company was named after legendary inventor Nikola Tesla. The pair planned to design and build electric sports cars, producing the ground-breaking Roadster sedan in 2008. The initial funding for Tesla came from a range of sources, with the most notable being from PayPal (PYPL) co-founder Elon Musk, who put over $30 million into the venture and served as the company’s chairman from 2004. Towards the end of 2007, Eberhard stepped down from his post as CEO and President of Technology to join the company’s advisory board. In 2008, it was officially announced that he had left Tesla, but remained a stockholder. In the next year, Tarpenning, who served as the Vice President of Electrical Engineering, and who played a major role in the development of the Roadster’s software and electronic systems, also left the company. Following their departures, Musk took over the reins as CEO. As mentioned, Tesla Motors unveiled its first car in 2008, the fully electric-powered Roadster. The car was one of a kind, as it was the first completely electric vehicle to offer comparable power and range to petrol-powered cars. In 2012, Tesla halted production of the Roadster so that it could concentrate on building the new Model S, a sedan that received acclaim for its design and performance characteristics. Tesla Autopilot, a type of semi-autonomous driving, was introduced on the Model S in 2014. In 2015, the company released its Model X, which is a crossover vehicle that has SUV characteristics but is built on the chassis of a car. Also starting in 2012, the company set up free-of-charge, fast charging facilities for Tesla owners in the U.S. and Europe and named them Superchargers. Later versions also had the capability to replace the Model S’ battery array and are called Tesla Stations. In 2018, the company also made forays into the production of solar energy products and batteries. In 2016, it cemented its commitment to this space by acquiring SolarCity, a firm that manufactures solar panels. To reflect that it no longer sold only cars, Tesla Motors was renamed Tesla Inc. in 2017.
Tesla Stock History
On January 29, 2010, the company filed a preliminary prospectus with the U.S. Securities and Exchange Commission, indicating that it intended to hold an initial public offering which would be underwritten by Deutsche Bank Securities, Goldman Sachs, J.P. Morgan and Morgan Stanley. In May of that same year, Tesla announced a “strategic partnership” with Toyota, which would purchase Tesla common stock worth $50 million in a private placement, immediately following the IPO. The Tesla stocks IPO was launched on June 29, 2010, listing on the NASDAQ exchange under the ticker TSLA. The company issued 13,300,000 stocks to the public at $17 per stock, raising $226 million. Tesla was the first American car manufacturer to go public since Ford Motor Company’s 1956 IPO. By 2014, Tesla’s market value was half that of Ford. While Tesla has rapidly taken off as a stock and has gained such an impressive market cap, its inconsistent car sales numbers have often negatively influenced the company’s stock price. Tesla investor’s confidence constantly fluctuates on the back of each quarterly earnings report, product announcement, product delay, news event and, of course, every tweet or TV interview by Musk. Most of the car manufacturing industry stocks generally move slowly and predictably in alignment to long business cycles. On the other hand, Tesla stock is highly volatile, with its Silicon Valley tech-like behaviour constantly baffling investors and producing opportunities for speculative stock trading in South Africa By June 2018, Elon Musk reportedly held 33.7 million Tesla stocks, owned indirectly via a trust. As a result, he is the company’s largest stockholder among both individuals and institutions. He is a controversial yet brilliant man, whose actions often have a profound positive or negative impact on the stock price of Tesla Inc. For instance, in September 2018, he was blamed for a dip in the value of Tesla stock after he smoked marijuana during an interview on live TV. Tesla has given no indication so far that it intends to pay its stockholders any dividends. However, it is important to note that this is not unique to the company. Many public companies only start paying out dividends to stakeholders after continued profitability, over an extended period of time.
How to Trade Tesla Stocks in South Africa?
Tesla is a highly volatile stock whose wild and sudden swings in price should provide plenty of opportunity for short-term and medium-term investors to benefit from. What are some of the factors that influence these movements in Tesla’s stock price?
- Tariffs and Trade Agreements
In 2018, China and the United States became embroiled in a trade war, with each country introducing steep tariffs on the goods they trade with each other. Unfortunately for Tesla, it manufactures one of the products that China has targeted with tariffs: electric cars. This is bad news for the fledgeling automaker since it is in Morgan Stanley’s list of the top 20 stocks with the highest revenues from China. The Asian nation accounted for 19% of Tesla’s total sales, before the introduction of the tariffs. The 25% tariffs that China imposed in July 2018 puts the price of Tesla cars beyond the reach of many Chinese buyers.
- Tesla Model 3 Rollout
After the exceptionally slow production growth, the company’s Model 3 cars finally started rolling off the production lines in mid-2018. If the company consistently meets its executives’ projections of at least 5,000 Model 3s each week, then Tesla’s gross margins should start to rise, and the company’s profits too a dramatic rise would certainly have a positive impact on TSLA stock in South Africa. For instance, in early September 2018, the price of the stock rose sharply after it was reported that Tesla topped the charts for the number of electric cars sold in August 2018.
- Elon Musk’s Verbal Interventions
As a workaholic who often logs as many as 120 hours of work in a week, Musk somehow seems to have time to post lots of messages on Twitter. Unvetted by the company’s legal team, the PR department or the Tesla board, these market-moving interventions have not only resulted in misunderstandings, anger and uncertainty on the direction that the company is taking, but they have also now led to investigations by the U.S. government. On August 7, 2018, Musk tweeted that he planned to make Tesla a private company with each stock at $420; a claim that will see him facing a suit from the SEC. As a result of the legal action, the company’s stocks plummeted by more than 10%.
Tesla Stock Trading Information:
- MT4 Symbol: #TESLA
- Trading Hours: 13:30-19:59 GMT
- Currency: USD
- Leverage up to:
Why Trade Tesla Stocks with AvaTrade South Africa?
- International Regulation:
AvaTrade South Africa (SA) is an award-winning broker that is regulated internationally. This means that you can trade Tesla stocks knowing that your trades are being handled by a trusted company that acts within the strict guidelines of the regulatory bodies.
- Leveraged Trading:
Since it is costly to purchase units of Tesla stock directly, the leveraged trading model of AvaTrade ZA CFDs trading gives you the opportunity to trade this highly volatile stock with much lower capital requirements.
- Ability to Short Sell Tesla stock:
Tesla is a highly volatile stock; whose price rises and dips frequently. When you short sell, you can potentially profit from these price movements, regardless of their direction.
- World Leading Trading Platforms:
AvaTrade South Africa is powered by the world’s most popular trading platforms, MetaTrader 4 and MetaTrader 5. What this means is that you will find an environment that is both reliable and customisable to your trading style and preferences. We also offer WebTrader – a browser-based platform that doesn’t require download and installation process.
Tesla Stocks Trading Main FAQs
- What should I know about Tesla?
Tesla is best known for its line of electric cars, but it is also heavily involved in the design, manufacture and sales of energy storage systems as well as solar systems. Tesla’s stock remained in a range of $20-40 in its first years of trade, then jumped to a $200-400 range from 2013 through 2019 before breaking out to the upside, reaching $1,000 in June 2020. The stock is known to be extremely volatile, in part because of the unreliable financial results from Tesla, but also in part due to the outspoken and sometimes contentious nature of founder and CEO Elon Musk. In some ways Tesla trades as much on what Mush says and does as on the fundamentals of the company.
- Is Tesla a good stock to trade?
Tesla has continued to struggle to deliver good earnings on a consistent basis, but the stock doesn’t really trade on its fundamentals. This has made Tesla an excellent stock for traders who have the patience to wait for proper pullbacks when they have the chance to buy the stock “on sale” so to speak. The stock also does well on breakout moves, and has proven itself quite profitable in these situations.
- What is the best strategy for trading Tesla?
As an extremely volatile stock, Tesla had both a daily gain of 19.9% and a daily loss of 17.2% in the first half of 2020, and saw its stock move more than 1% in over 75% of the trading sessions. This volatility can be good for traders, but they need a way to harness it if they want to be profitable. Because Tesla’s moves are so strong one short-term strategy for day traders and scalpers is to use the prior day’s highs and lows as entry and exit points. For example buying as price moves above the prior session high, but placing a stop at the prior session low can work well for volatile stocks like Tesla.