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Buy Tesla shares, a bet on the future

August 30, 2019 14:00 Australia/Sydney
Reading time: 7 minutes

Tesla shares are being scrutinized by the markets in 2019, as the company shows signs of weakness after having raised many hopes in recent years.

On paper, its growth drivers are real, but market expectations are high. In this article, we will see why buying Tesla stock remains a risky speculative investment, especially in the short term, making it a potential target for short sellers.

Who is Tesla, and why should you buy Tesla shares

Founded in 2003 by Martin Eberhard and Marc Tarpenning, Tesla is one of the leading pioneers in electric cars. It is best known to the general public when Elon Musk, who became a shareholder in 2004, took over the presidency in 2008.

Initially, the company only manufactured electric sports cars. Under Elon Musk's leadership, the priority is to expand the range to reach a slightly less specific customer base and to diversify into other segments such as electric batteries.

Publicly listed in the stock market in 2010, Tesla has had a stock market experience most investors envy. Although it manages to sell its models, Tesla had to incur a lot of debt to maintain its ambition to change the automotive world. For some time now, investors have been wondering about its financial sustainability.

Tesla share prices perfectly reflect the doubts surrounding the company's profitability, with the value of Tesla stock starting to lose ground in the stock market.

To understand the course of Tesla in the financial markets, it is necessary to highlight the drivers that made the price rally in the first place. While the company does not earn a lot of money and has mixed financial results – which should scare investors and weigh on stock prices – it has long been able to rely on its famous CEO, Elon Musk, who has the art of selling dreams and presenting a bright future for Tesla.

However, by promising too much without concrete results so far, investors are getting impatient and sanctioning Tesla's share price.

Tesla's financial analysis

The rapid growth in its revenues between 2009 and 2018 is typical of a start-up. It can make you believe that it is a good stock market share in the long term. The market, which tends to see things in a binary way, has bought this beautiful story that will supposedly revolutionize the world for several years until it returns to reality.

The main black spot in its financial balance sheet is that it burns too much cash. This explains why it remains a loss-making company. Fortunately, in the last two quarters of 2018, Tesla managed to be profitable to reassure its shareholders and meet its historical highs again.

However, Tesla reported a loss of more than $ 700 million (628 million euros) in the first quarter of 2019, forecasting another negative result in the second quarter, before a return to profit in the third quarter.

Despite growing sales, Tesla is facing heavy investments and debt repayments. In addition, the company has experienced difficulties in the production and delivery of its models, particularly in Europe and China. We are still a long way from the dream promised by Musk.

To divert investors' attention, the CEO announced "robot taxis" that will operate without drivers in the United States by next year. But investors now want to see results and no longer believe in Musk's promises.

Should you buy Tesla shares?

The chart below shows the history of Tesla's stock market price between June 2012 and April 2019, in weekly data.

Source: Admiral Markets MT5 Supreme Edition – Tesla, Weekly chart – June 2012 to April 2019

In early 2013, Tesla Motors' share price began a bullish rally from the $ 40 zone, which then experienced a first period of hesitation materialized through a range between $ 290 and $ 177 which lasted 3 years between March 2014 and March 2017, before a rally to the highest historical stock market price of Tesla shares at $ 390, recorded in September 2017.

Since then, Tesla Motors share price has been forming a range of consolidation and uncertainty, with a support zone of around $ 245.

Throughout this period, between early 2013 and April 2019, Tesla's stock followed a long-term upward trend line.

However, as market sentiment began to decline, as well as Tesla stock purchases due to investor impatience, the company's poor financial results in Q1 2019 gave the final blow, with a major technical breakdown below the long-term trend line and under the support of $ 245, based on a weekly closure.

We should also note the rebound that confirmed the resistance role of the $ 245 threshold (support becomes resistance).

This gives a bearish signal, with a possible drop towards $ 177. Tesla stock forecast seems to indicate more of a decline in the short term, but there will potentially be an opportunity to buy in the long term, especially if the company returns to profitability.

Tesla stock opinion – Should Tesla shares be bought?

Before you consider buying Tesla shares, you should first understand and analyze its business model in depth, because it is not a standard company like Coca Cola that has proven itself over several decades and has withstood the various crises with resilience.

The company still has to prove itself in order to be able to set up over the long term. This requires sustainable profitability, as well as better visibility in its activity. Tesla clearly faces significant challenges in growing its business and meeting its objectives, but it has a promising vision and significant competitive advantages in its industry.

Investors are dropping their Tesla shares, which is falling in the stock market, while most stock market indexes are bullish. Since the beginning of 2019, the markets have offered far too many opportunities elsewhere, encouraging investors to drop their Tesla shares to invest elsewhere.

The deficiency of the Tesla share in relation to other market values can be highlighted by comparing the share's market performance with its market index, the Nasdaq 100.

While the Nasdaq US stock market index has been rising since the beginning of 2019, the price of Tesla shares has been falling steadily.

Tesla suffers, but for those who believe in it and have the patience, it is potentially a future jewel. Tesla's current difficulties are likely to be temporary, perhaps providing a future opportunity to buy Tesla shares at a reasonable price.

In summary, aggressive traders may seek to short sell Tesla shares in the short term, while long-term investors will wait for a stronger correction to buy Tesla at a more attractive price, perhaps around $ 180.

How to buy Tesla shares

  • 1.Login to your MetaTrader 5 trading account
  • 2.Right-click anywhere in the "Market Watch" window
  • 3.Select "Symbols" and type Tesla in the search bar
  • 4.Select the Tesla security and click on "Show"
  • 5.Now that Tesla is in the "Market Watch" window, right-click on it and select "New Order". You can then select your position size, and buy the security

All you have to do is follow these five simple and quick steps to go long on Tesla!

How to sell Tesla shares

  • 1.Login to your MetaTrader 5 trading account
  • 2.Right-click anywhere in the "Market Watch" window
  • 3.Select "Symbols" and type Tesla in the search bar
  • 4.Select the Tesla security and click on "Show"
  • 5.Now that Tesla is in the "Market Watch" window, right-click on it and select "New Order". You can then select your position size, and sell the security

Are you pessimistic and think that the Tesla quotation will continue to fall? If so, you can short sell Tesla CFD shares with both Trade.MT5 and Trade.MT4 trading accounts.

About Admiral Markets

As a regulated broker, we provide access to some of the most widely used trading platforms in the world. With us, you can trade CFDs, shares, and ETFs.

This document does not contain and should not be interpreted as containing investment advice, investment recommendations, an offer or solicitation of any transaction in financial instruments. Please note that this trading analysis is not a reliable indicator of current or future performance, as circumstances may change over time. Before making any investment decision, you should seek advice from independent financial advisors to ensure that you fully understand the risks.

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