Tesla was the most profitable short stock in 2022, with investors reportedly making over $14 billion by betting against the EV maker, which has left many wondering what 2023 has in store for the company. Tesla was founded in 2003 and was essentially nothing more than a shell company until Elon Musk invested $6.5 million in early 2004, making him the largest shareholder in the company and CEO in 2008. Tesla has raised more than $20 billion since its founding, and it has four gigafactories producing electric batteries and cars. Despite increasing sales, Tesla’s stock has been struggling due to supply issues, competition, and bad press surrounding Elon Musk’s acquisition of Twitter.
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Tesla: A Look at its History and Current Challenges
Introduction
Tesla, the American electric vehicle (EV) company, has been making headlines for years. Its founder, Elon Musk, is often in the news for his innovative ideas and bold moves in the business world. The company’s stock has seen a lot of fluctuations, and it has been the center of attention for investors, both bullish and bearish. In this article, we will take a look at Tesla’s history, its recent challenges, and what the future may hold for the company.
Tesla’s History
Tesla was founded in 2003 by Martin Eberhard and Mark Tarpening. The company takes its name from Nikola Tesla, the Serbian-born inventor whose creations were crucial to humanity’s harnessing of electricity. When Tesla began, it was called Tesla Motors and was essentially just a shell company. According to Elon Musk, who needs no introduction, he invested $6.5 million in Tesla in early 2004, less than a year after it was founded. His investment made him the largest shareholder in the company, and he became CEO in 2008. Tesla has since raised over $20 billion since its founding, with investors including a who’s who of Wall Street and Chinese firms, such as the Industrial and Commercial Bank of China, which has the most assets under management of any bank in the world with over $5.5 trillion USD.
The Rise of Tesla
The initial public offering for Tesla stock took place in 2010, and it’s been a wild ride ever since. Anyone who bought the bottom and sold the top in November 2021 made a whopping 350X return on investment or more, and Elon seems to be one of these lucky people. As some of you may know, Tesla wasn’t a profitable company until fairly recently. Its first car was called the Roadster, and only 2,500 were sold despite government subsidies and incentives on electric vehicles in many countries. Tesla’s Model S and Model X likewise got off to slow starts. It wasn’t until 2020 that Tesla saw its first year of profit, something that was probably facilitated by all the pandemic stimulus around the world. It’s probable that the pandemic restrictions also played a part, because it meant that most people could only spend their money on goods, hence the rally in auto sales.
Tesla’s Gigafactories
Contrary to popular belief, not all Tesla cars are made in China. Tesla actually has four so-called gigafactories. The first is Tesla’s iconic Fremont Factory in California, which was opened in 2010. The second gigafactory is in Shanghai, China, which only opened in 2019. The third gigafactory is in Austin, Texas, and it was announced in early 2020 after pandemic restrictions prevented the Fremont Factory from operating. Tesla subsequently moved its headquarters from California to Texas in 2021. The Texas gigafactory opened early last year. The fourth Tesla gigafactory is located in Berlin, Germany, and it likewise opened last year.
Tesla’s Recent Challenges
Tesla’s last quarterly earnings report was released in September 2022. It revealed that the car maker had made over $21 billion in Q3 last year, with almost $5.4 billion in profit. This brought Tesla’s yearly earnings to a staggering $75 billion, with almost $20 billion as profit. Tesla’s quarterly report for Q4 2022 isn’t due until later this month, but it’s already been confirmed that a record number of Tesla cars were sold last year. Over 1.3 million Teslas were sold in 2022, compared to 930,000 in 2021. That’s a 40% increase in car sales, which is truly incredible growth. And yet Tesla’s stock has continued to slide. This is for many reasons, and the first is supply. Although Tesla sold over 1.3 million cars last year, its gigafactories produced almost 1.4 million cars during the same period. As basic economics dictates, an increase in supply tends to cause prices to drop. This of course assumes that demand stays the same or increases. In Tesla’s case, investors are concerned that demand for its cutting-edge EVs has been dropping. This is in large part due to the upcoming recession we’re likely to see, which Elon himself has said could last until early 2024.
The Bad Press Around Elon’s Acquisition of Twitter
The second reason for the drop in demand is the bad press around Elon’s acquisition of Twitter. If you watched our video about Elon’s Twitter acquisition, you’ll know that governments and Wall Street have been aggressively pushing back against his attempts to create a free speech platform. That’s why it’s no coincidence that the United States, the European Union, and others have been finding every excuse to investigate Tesla. Most of these efforts have been focused on Tesla’s controversial self-driving autopilot feature, which has resulted in multiple accidents, almost all of which are due to user misuse.
Wall Street
As for Wall Street, the S&P 500 kicked Tesla out of its ESG Index. This is despite the fact that Tesla’s mission is to “accelerate the advent of sustainable transport and electric technology.” That’s because ESG investors don’t truly care about the “E”; they care about the “G,” which is code for control. Another thing that Wall Street has been doing is relentlessly shorting Tesla stock. To be clear, shorting a stock does not cause it to go down. However, the optics of seeing big names bet against the car maker causes the average investor to follow suit. Tesla has actually experienced this before. If you watched Elon’s TED interview about his Twitter acquisition, you might recall him talking about how Tesla stock was being relentlessly shorted by Wall Street because of a lawsuit by the SEC. Elon claimed that he was pressured by Wall Street into settling with the SEC, and it’s why he hates them both.
Competition
The third reason why Tesla stock has been struggling ties into the second, and that’s competition. Tesla is no longer the only EV show in town, and many existing car companies have shifted their focus to EVs too. In terms of total car sales, Tesla’s biggest competitor is a Chinese automaker called BYD Auto. BYD Auto is a subsidiary of BYD, which stands for “build your dreams.” BYD was founded in 1995 by Wang Chan Fu, who has since become China’s richest man. Funnily enough, BYD Auto was also founded in 2003. Last year, BYD Auto sold over 1.85 million EVs, an unprecedented 3x increase compared to 2021. This exponential growth makes sense when you consider that China has been buying more EVs than every other country combined since 2016.
Conclusion
Tesla has come a long way since its founding. Its innovative ideas and focus on sustainability have won it many fans, and its stock has seen a lot of success too. However, Tesla’s recent challenges cannot be ignored. Investors are concerned about supply and demand, bad press, and increased competition. Whether or not Tesla can overcome these challenges remains to be seen, but one thing is certain: the next 12 months could bring about a recovery rally unlike any other. As always, investors should exercise caution, do their own research, and make informed decisions.
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