During 2020 the company Tesla shares increased by almost 700%. But with this big rise followed by loss of earnings, many investors may be asking, “Isn’t it time to buy TSLA stock?” Before making a decision, think about the pros and cons.
Benefits of buying Tesla shares
One of the highlights of Tesla’s latest earnings report was the record number of vehicles produced and delivered. In the fourth quarter, Tesla produced 179,757 vehicles, up 71% from the same quarter last year, and far more than the 145,036 vehicles produced by Tesla in the third quarter.
Tesla has set an ambitious goal of delivering 500,000 vehicles by the end of the year. Even with pandemic-related production line disruptions, the company came incredibly close, delivering 499,647 vehicles during 2020. Tesla management believes it can improve the situation by promising a 50% average annual increase in shipments over the next few years. .
Another sign of improved operating performance was free cash flow, which remained positive for the second year in a row. Free cash flow reached $2.79 billion in 2020, more than double the $1.08 billion raised by the company in 2019, on a record free cash flow of $1.9 billion during the fourth trimester.
More cars coming off the assembly line and improved financial position is an impressive combination. And while the company itself is doing well, macroeconomic trends also seem to favor Are you here right now.
In the long term, optimistic investors are pinning their hopes on fully autonomous vehicles. Dozens of companies are working in this direction one way or another, but Tesla’s leadership is difficult to overcome. Tesla’s use of cameras, radar and GPS has progressed over the years to the point where Tesla cars have become virtually self-driving.
Finally, thanks to the victory of President Joe Biden in November, combined with the Democrats’ control of Congress, Tesla offers more options. Companies that focus on green and clean technologies will benefit from tax incentives for consumers and producers. While these awards have not yet manifested, President Biden’s ambitious plans to combat climate change point to many future opportunities for Tesla.
Bottom line: Should you invest in Tesla stock?
Race for shareholders seems to be easing as the company finds profitability quarter after quarter. However, investors cannot ignore Tesla’s inflated valuation multiples. And while the company’s 2020 total revenue was $31.5 billion, its current market capitalization is nearly $800 billion.
Tesla has become the largest automotive company in the world and is now firmly at the forefront of the industry. If things continue to go Tesla’s way, that shouldn’t change anytime soon, and based on history, betting against Musk is generally a bad idea.
However, the risks remain: Tesla is no longer the only EV company to watch, and investors should be prepared for the idea that its more established competitors could edge Tesla out. In short, investors interested in buying TSLA stock should add it to a well-diversified portfolio.