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Tesla [TSLA] share price explained: the key markets propping up the e-car giant

A few years ago it all looked to be going so well for Tesla [TSLA]. The company synonymous with electric vehicles seemed set for an unstoppable rise. But events over the last two years have caused investors to question whether the stock continues to have the potential to skyrocket, or if it is set to plummet - indeed, the share price has been incredibly volatile. But while global sales often make it look like an underwhelming stock, local markets are looking significantly more promising.

Take for example the company’s situation in Norway.

Norway is one of the world’s most mature electric vehicle markets with incentives to go green dating back as far as 1990. The company’s strong performance among a discerning audience has meant that Norway now stands as Tesla’s fourth-largest international market, despite its relatively small population. 

In March 2019 Tesla sold 5,700 vehicles in Norway, representing 31% of all sales of new passenger cars in that month. In Norway, 57% of all new cars bought are electric.

57%

Electric cars as a percentage of total vehicles bought in Norway

 

Share price subject to Musk’s tweets 

In recent years, one of Tesla’s biggest problems has been the perceived difficulty to judge where its share price will go from one day to the next.

Late March saw Tesla slip below the $260 mark for the first time in six months. The last time that happened, CEO Elon Musk had settled with the US Securities and Exchange Commission (SEC) after claiming that he could take the company private with a buyout of $420 per share. That was ultimately proven to be false and Musk paid the price out of his own pocket.Tesla 1-year share price performance, CMC Markets, as at 3 April 2019

 

Under the scrutiny of US district judge Alison Nathan, Musk’s attorneys are expected to faceoff with the SEC in US district court on 4 April over the alleged violation of his October 2018 fraud settlement with the regulator. 

However, investors are likely to be more occupied with the release of Tesla’s first quarter results and will be particularly focused on how the Model 3 performed. 

While the Model 3 continues to deliver growing sales every quarter with 63,359 vehicles being delivered in the most recent fourth quarter of 2018, city analysts are predicting a slight fall in the upcoming announcement. Estimates are around 55,000-56,000, which if reached will likely spur a rally in the stock.   

Demand across the Tesla range has remained steadily on the higher side since the day of their launch, but the first quarter looks to have the potential to break that trend. The company meanwhile has been working hard to incentivise sales in the fourth quarter by offering a further increase in tax credit if purchases were made during that quarter as well as price cuts.

As it stands, Tesla looks to be betting on its European deliveries to offset any softness in US demand. City analysts expect around 17,300 sales for the Model X and S, both of which reached all-time high market shares in the US last quarter with sales at 20,700. 

Considering majority of analysts are expecting earnings to disappoint, the company could see a considerable drop in valuation if it were to miss analysts’ estimates, especially with a PE ratio of 47.1. As it appears that the company is trading at a premium when compared to the industry average of 10.59. 

 

Market cap$50.91bn
Forward P/E32.64
EPS (TTM)-5.72
Profit Margin-4.55%

Tesla stock vitals, Yahoo finance, as at 3 April 2019

 

Musk’s volatility, public image and ability to change the carmaker’s share price in 320 characters or less, continues to be one of the biggest thorns in Tesla’s side. 

But Musk aside, the most surprising aspect of Tesla’s recent drop in share price came after a company first - back-to-back profitable quarters, something Tesla had never succeeded in doing. It was the fourth quarter of 2018 that bucked that trend and investors will be keen to see if momentum can be sustained. 

 

What now?

The success of Norway’s green-forward economy, a market that is indicative of where many country’s car sales will be heading over the coming decades, gives cause to be optimistic.

Despite economic woes across the continent, electric vehicle sales have increased by 36% year-over-year in Europe with the Model 3 leading the race in February as sales reached 3,757, according to a report by Clean Technica. 

36%

Year-over-year increase in electric car sales in Europe

While another report published by BMW showed that the German car manufacturer boasted the fourth-highest share of electric vehicle sales in Europe, with Tesla in fifth place. In Germany alone, BMW holds a fifth of the entire car market, with Tesla settling for just 3%.

In its home market of the US, Tesla stepped up in Q4 2018 to sell more cars in that quarter than it did in the entire of 2017 with sales of 90,700 units for that single quarter alone.

It still holds joint-first place for electric vehicle sales with Chinese business BYD and Tesla’s share price could be representing better value than at any time in its floated history.

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