More risks you need to consider before investing in Tesla
In our previous posts, we talked about Tesla $Tesla(TSLA.US$ facing Production and delivery risks, Regulatory and policy risks, as well as Competition risks.
Financial Risks:
Tesla operates in a capital-intensive industry and in order to maintain its technological advantage, it needs to invest heavily in R&D.
Tesla has consistently been investing around 6-8% of its revenue in research and development. In 2020, the company reported spending $1.1 billion on R&D, which represented 6.5% of its revenue. In 2019, the company reported spending $1.2 billion on R&D, which represented 8.2% of its revenue.
However, all these investments may not bear fruits, which could dilute the value of existing shares or increase the company's debt.
Fortunately, with a healthy balance sheet and cash exceeding total debt, Tesla should be able to easily meet its financial obligations.
Dependence on key personnel Elon Musk:
Elon has been a highly controversial leader. Its extreme publicity is a double-edged sword for Tesla. His recent purchase of Twitter also caused him to sell off over $22 billion of Tesla shares, which further dampened investors’ confidence in the company. Just in about two years, Elon has off-loaded about $40 billion of Tesla shares.
Investors are also concerned about Elon’s ability to juggle between so many businesses, from Tesla, SpaceX, the Boring Company, and Neuralink to now Twitter. The loss of this key personnel could also have a material adverse effect on Tesla.
Due to the risks involved, Tesla’s stock price has been extremely volatile in the past and may continue to be so in the future, which could lead to significant losses for investors. So what should be the right valuation for Tesla in order to invest safely? Stay tuned for the next post!
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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TeslaSmurf : RISKS from buying (TSLL) from 103 to 133 with a 119 average ? The ONLY risk is to make money
As it reaches my goal (or if the trend changes), I’ll sell the TSLL and convert the profits into discounted TSLA to hold. THAT is risk reduction, not to stay away from the most profitable car/energy/software company in the world.