It is difficult to ignore the meteoric rise of Tesla over the past 10 years…
After initially gaining attention for producing the world’s first electric sports car, Elon Musk’s company diversified its automotive line-up before branching out into energy storage.
While it posted a wider than expected fourth quarter loss, strong sales helped boost revenue to US$2.28 billion from US$1.21 billion a year ago.
During this time, Tesla also acquired solar power provider SolarCity, which added US$77 million of cash to the business.
As a result, Tesla was named top stock-market pick for 2017 by Baird Equity Research.
But does all of that lead to Tesla being a smart choice for Australian investors?
Is Tesla’s popularity due a knock or, indeed, are there other factors that could put you off from parting with your hard earned dollars?
The case for Tesla
Despite the fact Chairman and CEO Elon Musk is looking for additional financing this year, he revealed that the company has enough cash to bring out the Model 3.
But, not doing so now would bring Tesla ‘closer to the edge’ which was: “Probably not the best thing for shareholders. I think it makes sense to raise capital to reduce risk.”
Even so, Tesla remains a solid stock market pick for 2017 according to Ben Kallo, analyst at Baird Equity Research.
He feels as though an increase in battery production and sales will coincide with the launch of the Model 3, an all-electric sedan that should cost around US$35,000.
“We believe TSLA’s energy storage business and growth opportunity is not currently reflected in share prices,” Kallo wrote in a note.
Musk himself added the company has a long line of reservation holders for the car and that production is ‘on track’ to begin production in July.
On this evidence, 2017 doesn’t look like being the year when Tesla is knocked off course.
Currency fluctuations shouldn’t be ignored
Yet the start of 2017 has been a turbulent time for the markets, not least due to the arrival of President Trump onto the scene.
No-one yet knows how the new man in the White House will settle into the role but his arrival did send ripples through the global economy.
As Trump came to office, the Australian dollar suffered a dramatic drop to just US71.76C.
Fluctuations such as this might well provide opportunities for investors with a keen eye on the AUD to USD price but they’re less positive for those looking to Tesla.
It’s not yet clear if Trump will be keen on electric cars and his view might well be important. He did meet Elon Musk in his first week in office after all.
The brand itself seems sound, but no-one should ignore the wider economic factors and the impact of the exchange rate on the value of this sort of investment.
For the short term at least, that might make people more cautious about Tesla.