In 2019, Tesla was the best performing stock of the year and it was certainly no surprise when the shares gained close to $45 billion since the year began.This astonishing figure was largely due to the increased demand for electric vehicles and the positive reviews the company has been getting from analysts.
Tesla’s market capitalization underwent a remarkable journey this year, it’s value skyrocketing from $36 billion to $84 billion. This feat was more impressive considering the events of the past as Tesla had earlier struggled to meet production targets and posted substantial quarterly losses in prior years.
Tesla is among the most profitable companies in the automobile industry and that is significant in and of itself. Inspite of the monumental growth they evinced, they only managed to reflect a production rate of 1,000 cars a day in 2018.
Tesla’s Recent Performance
In the fourth quarter of 2018, Tesla’s revenue rose by 140% compared to the same period in 2017. Furthermore, for the full year, their prospects had also greatly improved as net income of $2.2 billion marked a significant improvement on their prior year losses.
Further, Tesla raked in $7.2 billion in revenue in the first quarter of 2019, a 11% increase in comparison to the previous year. In fact, the company even managed to post a small profit of about $4 million for the quarter. This reversal of fortunes for the company further added to the appeal of their stock.
Their car production also increased from 1,000 units per day to 2,000 units per day. Thus the growth trend of their stock was further highlighted by their increased production rate.
In May 2019, Elon Musk announced his intention to sell some of his shares in Tesla as he believed it would “better enable Tesla to remain a public company”. This statement was made in the wake of the company’s sudden surge in share price which had led to speculation of a possible takeover.
It is only natural that certain thoughts of such a move would come to mind. After all, it isn’t exactly uncommon to see companies acquire the stock of other companies in order to take control of them as a way of expanding their own operations. Musk was cognizant of this and wanted to ensure that he was able to prevent any potential takeover.
Moreover, it was an opportunity to reap some financial reward as well as Musk could directly benefit from the increased value of his shares. Hence by selling some of his shares, Musk was able to cash in on the success of Tesla.
Musk’s timely decision to sell Tesla shares proved to be beneficial for the company. This move created liquidity for Tesla and also helped to reduce its debt load. As a result, the stock prices remained steady and this allowed the company to continue its operations uninterruptedly.
Several analysts opined that if Musk didn’t choose to sell his shares at this time, then the consequences of a potential takeover would be damaging and could even prove to be catastrophic for the business.
The share sale also enabled more people to invest in the company as more capital was made available. As a result, it allowed more investors to be a part of Tesla and to reap some of the benefits the company was generating. This was followed by a purchase by Saudi Arabia’s sovereign wealth fund which was reported to hold up to $2 billion worth of Tesla shares.
Other Reasons for the Sale
Musk’s sold Tesla shares also coincided with a few other prominent news. For instance, the world got its first look at the Tesla Model 3 and the semi-autonomous capability it was shipping with. This addition to the Tesla line-up was seen as a turning point for the company.
Additionally, Tesla was nearing a new debt-to-equity ratio threshold and, if crossed, the company would have been required to issue new stock, diluting Musk’s stake in the company. In order to avoid this, Musk decided to sell while the stock was high.
Furthermore, by selling his 5% stake in the company it allowed Musk to remain above the 20% ownership threshold that would have triggered additional securities filings and reporting requirements.
The Numbers for the Sale
Investors had speculated that Musk’s intention to sell Tesla shares was in order to raise some extra funds. And there was certainly some truth to that as the numbers revealed that Musk had sold $272 million worth of Tesla common shares. It was speculated that this amount was meant for other investments.
The manner in which Musk sold his shares was also interesting. For instance, he had filed two separate registration statements, one of which was a private placement of 3 million shares worth $250 million. The other was a forward contract that allowed him to sell up to $10 million worth of shares over the next 10 months.
The Aftermath of the Sale
In the wake of Musk’s sale of his shares, Tesla stock prices dropped slightly on the news. Yet, due to the well-received Tesla Semi and the Model 3, the stock saw a gradual rise once more. It was even argued by some analysts that the news had a positive effect on the company.
Overall, the sale of the stock did not change the fundamental outlook on the company and had a much lesser effect on its overall prospects than a potential hostile takeover would have had. To this day, Musk still owns around 20% of the company and will likely continue to remain a major shareholder for the foreseeable future.
Pros and Cons for Musk’s Situation
The decision to sell Tesla shares in May 2019 turned out to be a wise one for Musk, as it enabled him to reap a healthy profit without endangering the company’s stability.However, there were also dangers associated with the move.
Primarily, the profit made was only temporary. Despite Musk selling off millions of dollars worth of stock, the future of Tesla is still uncertain and its share prices remain volatile. Furthermore, it has been argued that Musk is merely delaying the inevitable and that eventually, the value of the stock will crash, resulting in massive losses.
Though the decision to sell Tesla stock was a good one, it remains to be seen if it will be worth it for Musk in the long run. For now, Tesla is still on the path of growth, setting a new standard for performance in the automotive industry.
Expert’s Opinions
Experts have offered various perspectives on Elon Musk’s decision to sell Tesla shares in May 2019. Some have lauded the move, arguing it was the only way for Musk to protect the company from a hostile takeover and that it provided a short-term financial boost.
Contrary to that, other analysts have portrayed it as a move filled with risks. They argued that Musk was merely delaying the inevitable as Tesla’s share prices are volatile and the future is uncertain. Moreover, they pointed out that Tesla is still grappling with losses and has a worrying debt-to-equity ratio.
Ultimately, it is clear that opinions were divided on the issue and only time will tell if Musk’s decision to sell Tesla stock was a smart move. It is certain, however, that he must remain vigilant and closely monitor the company’s trajectory in order to protect the value of his remaining shares.
Competition from Traditional Automotive Companies
Traditional automotive companies have long been wary of electric vehicles. However, with Tesla’s success and the growth of the industry, these companies have taken notice and have started launching their own EVs as well as investing heavily in the sector.
Due to the competition, Tesla’s market share has declined significantly. This, in turn, has put a pressure on their stock, prompting some investors to start to become less optimistic about the company’s outlook. Despite this, Tesla remains one of the most valuable companies in the world.
A possible consequence of increased competition is that Tesla will have to fight tooth and nail in order to maintain its market share and remain competitive. It is no surprise that some experts have already noted the difficulties presented by competition in the EV sector and it will be interesting to see how Tesla responds.
Changes in the Automobile Industry
The introduction of electric vehicles has drastically changed the landscape of the automobile industry. This new and emerging sector has provided customers with improved specs, longer range and higher performance, features that conventional internal combustion engine vehicles cannot match.
Tesla has thus taken the lead in this arena and is pioneering the EV revolution with its technologically advanced vehicles. Musk’s vision of a green and sustainable future has been embraced by many and it has paved the way for more innovation in the sector.
These developments have prompted traditional automotive companies to partner with renewable energy companies in order to improve their offerings and to stay relevant in these rapidly changing times. It therefore appears that the future looks bright for electric vehicles.
General Response towards Tesla
It is clear that there is plenty of love for Tesla and its products out there. Many customers have been satisfied with their purchases and their performance has oftentimes been praised in reviews. This positive response from customers has been the driving force behind Tesla’s growth and stock prices.
Furthermore, Tesla has received approval from governments and regulatory bodies around the world. For instance, in Europe the company recently received approval to start selling its cars in Germany, a major market for the automotive industry.
The company’s innovative products also continue to make headlines on countless occasions. This showcases Tesla’s standing as a leader in the EV industry and further bolsters their reputation as a pioneering company.
Environmental Impact of Tesla
Tesla’s commitment to the environment via its products is undeniable. As the EV sector grows, it is gradually replacing the use of conventional vehicles, dramatically reducing carbon emissions.
Tesla alone has managed to reduce 1.3 billion tons of CO2 emissions via its production of cars and renewable energy solutions, and it is no surprise that sustainability and clean energy advocates continue to show their support for the company.
Tesla’s vehicles offer great performance to their customers and, at the same time, are responsible for less environmental damage. This unique blend of performance and environmental responsibility is what has helped them become successful.
The Future of Tesla
Tesla appears to have a bright future ahead, with the company already taking giant strides towards its goal of transitioning the world to sustainable energy. Inspite of its current performance, it remains difficult to predict the future of the company and the EV sector as a whole.
Moreover, the potential of Tesla is definitely still immense and there is no doubt that the company still has plenty of room to grow. The stock prices remain volatile and the company will have to continuously strive to improve its products and services in order to remain competitive and ensure further growth.
It is clear that much is riding on Tesla’s success, and it doesn’t hurt that Musk remains at its helm. With the right team and strategies in place, the company appears to be on the right track to become the undisputed leader in the electric vehicle industry.
