Tesla lives the American dream as it continues to rise despite having so many contestants. Moreover, let us not forget that the company split its share price in 2020 – yet it continues to outperform mostly on brilliant moves by its management, in particular Elon Musk.
Its performance this year is staggering by all metrics – up +579%. For a company that only in 2020 managed to put a fourth consecutive profitable quarter (a requirement for the S&P 500 inclusion), the performance is even more remarkable. Moreover, this is an automaker, albeit an electric vehicle’ one. The product sold is expensive enough to matter during a recession and pandemic.
Yet, all these factors were discounted by investors. Furthermore, Goldman Sachs just upgraded Tesla to BUY on sales and margin outlook.
Smart Moves by Tesla
One of the most underappreciated factors contributing to Tesla’s rise is its move into China. Investors and traders tend to focus on what is happening in the United States and consider China as a manufacturing-only country. That is correct, but only to some extent.
In recent years, China has invested massively in reducing its CO2 emissions. One of the ways to achieve results is to increase its electric vehicle fleet. Massive incentives are brought to producers’ doors to have a certain percentage of their fleet in electric vehicles. Local producers compete with joint ventures with Western companies, General Motors being just one example.
Guess who is in second place in the number of electric vehicle sales in China? You guessed – Tesla. In other words, it produces and sells its product locally, cutting transportation costs.
When buying shares of a company, investors try to anticipate the future free cash flows and discount them to present to find the intrinsic value of the company. It is not that difficult to imagine that Tesla will strive to sell its products in China, as long as its brand keeps shining.
One more thing to consider – the charging infrastructure. The Chinese charging outlets outpace the ones in the United States by a mile. This year, the network exceeded five-hundred thousand charging stations, five times more than in the United States.
Tesla may be overvalued, but it was so at the start of 2020 too. Could it be that its bold investments start to bear fruits in the worst possible timing – a global recession?
Imagine its results in an economic boom.