• Fuga Morita

Examination of tesla stocks. Is it a buying opportunity?

The EV market is one of the world’s fastest-growing industries, with an average CAGR of 22%. With the aid of the government, the EV market has successfully expanded its market size, as it’s expected to reach 233.9 million units by 2027. Amid international electrification, It is essential to consider the potential shifts in geopolitics and the economic or social risks regarding the implementation of EVs in the coming years, as it may affect Tesla’s stock price.

The vast electrification of automobiles is anticipated to have a major influence on diplomatic relationships, and trigger potential conflict between countries. Traditionally, many wars have been present regarding the procurement of oil. One of the most famous wars that have been persisting for nearly decades is the ongoing Syrian civil war. The scarcity of essential resources, primarily crude oil and natural gas, has triggered national power imbalances. However, this persisting mechanism of national imbalances has been disrupted, with the accelerating implementation of EV.

Electrification is inevitable, as resources such as oil and gas are finite, and have detrimental repercussions for using them. Thus, industry experts are suspecting that this oil-centered power will gradually shift towards electricity-centered power. For example, countries with mediocre supplies for manufacturing batteries will suffer from those countries that have rich supplies. For example, the Democratic Republic of Congo accounts for more than half of the world’s cobalt, a required resource for manufacturing batteries. This will Inevitably cause countries to depend on Congo. Moreover, lithium, an essential ingredient for building electric cars, is controlled by five companies.

Trade tensions are already rising, as the former US President Donald Trump, has registered a list of 35 minerals, including cobalt and lithium, that will be critical to the economy. However, I suspect that geopolitics will have a minuscule impact on Tesla in the coming 1 year. At Tesla’s Battery Day, Musk revealed that Tesla is planning to cut their battery cost by half within a few years, by suspending the use of cobalt in perpetuity. This major movement practiced by Tesla has not only reduced the price but I firmly believe that Tesla will be free from depending on Congo for manufacturing their batteries. This indicates that Tesla can avoid political issues, and firmly secure its position regardless of the transformation to electricity-centered power. Therefore, in the coming 1 year, Tesla will not be negatively impacted by geopolitics.

Tesla partly has an economic problem, specifically a financial problem. Regarding its volatility in the stock market, Tesla can significantly lose its company value if it fails to meet expectations. To be specific, Tesla has a Beta of 1.98, significantly higher than any other competitors. If at any point, Tesla failed to meet expectations, industry experts are confident that Tesla’s stock will plummet. However, regardless of these fears, Tesla is continuously breaking expectations in the current state. For instance, in the latest quarterly report, Tesla has managed to break new and notable records. Tesla has reported that its net income has surpassed 1$billion, up tenfold from a year ago. In addition, the expected revenue by industry experts was around $11.30 billion, while raising revenue of nearly $12 billion. In the coming year, Tesla is expected to release Model Y(globally) and Cyber Truck, which I suspect that the sales would again break new records.

Therefore, I conjecture that Tesla would be able to exhibit healthy growth in the stock market in the coming year. Although the geopolitics concerns confront the entire EV industry, Tesla can avoid them with its cobalt-free batteries that will be soon implemented. Even in the current state, Tesla’s Model 3 sedan uses less than 5%, far less than its competitors. Moreover, the economic problem may become a large problem, as Tesla’s stock price has been highly volatile in recent years. However, I believe that Tesla will surpass expectations, as its preparing to launch new products in the coming year.