Many people have an interest in the stock market or in getting involved in investing in some way. While it’s not difficult to appreciate the appeal of investing in stocks, many people find that the idea is somewhat intimidating, as it can seem very complicated at first to begin understanding the stock market and how you can begin to invest in it. Investing in the stock market can be a great way to build up your net worth and assets, without needing to radically change your lifestyle or financial situation. This article explains the stock market in simple terms, as well as outlining some of the ways you can start to invest if you are not currently confident doing so.
What Is a Stock?
It is a bit difficult to break down into simple terms, but in essence, a stock represents a claim to a portion of the assets and earnings that a company accrues. Stocks can be bought and sold on the market by individuals and companies alike. If you buy a stock, then you essentially own a tiny part of the company.
There are two primary kinds of stocks that are available to trade. These are common and preferred stocks. The differences between these two are manifold, but the most important difference between the two for the average person who wants to get involved in the stock market is that ownership of common stocks generally affords one a say in key decisions and changes for the business involved. For example, if the business was to change leadership or elect a new senior position, then holders of any common stocks the company may have are often given some input, or they may be able to vote if there are several candidates for the role.
You may be wondering why exactly companies allow people to purchase stocks in the first place. Generally, selling stocks is a fairly reliable way to allow for consistently fast growth, as it provides companies with the capital they need to continue investing in their company. There are many ways for companies to do this, but selling stocks is faster and more dependable than, for example, trying to attract investors via crowdfunding or other methods.
Some companies sell stocks almost immediately after they are established. This is often done if their leadership feels that they need more capital at their disposal than they are able to access through a standard bank loan or through their activities. If this is the case, then the company may choose to go through the process of an Initial Public Offering. This means that the company is no longer entirely private and that the public can buy shares or stocks in it. It can also be a good opportunity for investors, who are skillful enough in spotting trends in the market and consumerism. Buying a share at this early stage is often advantageous, as it can become very profitable to sell them later on once the company has seen some success.
Once a company has made its stocks available on the market, the value of these changes depending on how they are evaluated by investors and traders. This fluctuation happens to all stocks, and it is generally determined by an algorithm or ratio. These analyses are fairly complex, but what this ultimately means is that the values of a stock are essentially out of your hands as a buyer. What is important is that you do your best to ensure that you make wise decisions in trading and that you do your research when you start trading in the stock market.
Stock Exchanges Explained
A stock exchange is essentially a marketplace where stocks can be bought and shared by investors and traders. It is worth mentioning that once a stock has been made available initially, it is no longer being sold by the company itself that the stock is in. Buying and selling stocks on a stock exchange is essentially a process between two second parties, and companies do not often actually buy or sell their own stocks after initially making them available for purchase.
The first stock markets to appear in America began to crop up in the 18th century. The New York Stock Exchange is renowned around the world for its importance and influence, and it was actually established all the way back in 1792. This was a key moment for the history of commerce and finance in the US and, arguably, globally.
At the time of the founding of the first stock markets, it was obviously not an entirely safe practice, as there were limited opportunities for regulation or for the authorities to ensure the honesty of practices and trends in the market. Now, there are many regulations and insurances that apply to the stock market, which allow people to have much more confidence in engaging in the practice of buying and selling stocks. The stock markets of the world are also linked together today, which means the process of buying and selling between markets has been made much smoother than it has been in the past.
It is also possible in some instances to buy stocks in an over-the-counter fashion, and these are also known as bulletin boards. Buying such stocks can be a risky move, as they are usually listed in the first place because they have not met the standard criteria for listing in a major stock exchange. Such criteria often concern how long the company has been operating or how profitable it is. Stock exchanges in many countries are essentially able to set their own rules and standards to a large extent. While it can be risky to buy over-the-counter stocks, it is not something that should be written off altogether, as it offers access to stocks that would not be available otherwise and which may be very lucrative.
How are Stock Prices Decided?
Generally speaking, the price of a stock is determined and changed by the auction process which it goes through. Prospective buyers bid on the stock, and traders set a price that they think the stock is worth and wish to sell it at. Stock markets are essentially made up of buyers and sellers, and they are the ones who are influential in determining the prices of the stocks, among other things. Many people do not engage in the stock market themselves but through employing the services of a stockbroker. A stockbroker is essentially someone who can do the buying and selling for you, eliminating the need for you to get directly involved with the process yourself. This may be something for you to consider if you are interested in beginning to invest but do not wish to occupy much of your time with the process of actually engaging in the stock market directly.
If you wish to find a stockbroker to trade in the market for you, your best bet is likely to be finding a retail broker who you can start an account with. There are many different ways to do this, and now it is generally possible to do so online by using brokerage websites or software. This makes it much easier than it has been in the past to find a broker to work with, and in many cases, this software allows you to be very involved in the process. You can also find a broker at a brick-and-mortar brokerage, which may be less convenient but is, of course, more personal. Ensure that you find one that has a good reputation.
Supply and Demand on the Market
The concept of supply and demand is generally crucial within the world of commerce in general, and the stock market is certainly no exception. For every trade that takes place, there obviously needs to be both a buyer and seller who are willing either to part with the stock or to buy it. Generally speaking, if there are more interested buyers in a stock than there are shares available, the value goes up. The inverse is usually true too. This means that the market is a pretty good example of the concept of supply and demand in real time.
Is Investing Worthwhile?
Beginning to invest can be an intimidating undertaking in many ways. However, it does not need to be. There are so many ways to get involved in the stock market, and all you really need to start with is an amount of money that you are willing to experiment with. There is no reason you can’t start small. There is plenty of research which demonstrates that investing in stocks can be a fairly dependable way to build up your financial assets and capital over time.
While many people have alluring success stories of investing in huge companies when they were small and subsequently experiencing incredible gains upon selling these stocks, this is not very typical. While you can certainly try to predict the future of newly founded companies based on their profile and target audience, if you do not want to take too many risks on the market, it is generally wiser to invest instead in companies that are established and have a good track record of growth and success.
It is also possible to give swing trading a try. However, this is generally a pretty risky practice and involves closely monitoring the market nearly constantly, buying or selling stocks when they are at their most or least valuable point. This often involves a lot of guess work, and it is certainly not advised for those who may be risk-averse or who do not want to risk losing the money they invest, as the process is quite similar to gambling in many ways.
The stock market has been around in one form or another for hundreds of years. Every day, billions of shares are bought and sold in various stock exchanges. Trades happen all around the world while some are sleeping, and others are going about their regular jobs and routines. If you are thinking about buying shares, it’s worth getting your facts straight first. Important questions covered in this article include what the stock market is, the difference between investing and saving, understanding the risks, and much more.
What Is the Stock Market?
Publicly listed companies are effectively owned by a large collection of shareholders. A share or stock of such a company is a small fraction of the company. Just about anyone can buy and sell stocks of their favorite public companies, be it Apple, Tesla, or Amazon. When these companies do well, the shareholders get a return on their investment either as a dividend or an increase in share value. On the other hand, companies benefit from being listed on the stock exchange because they are able to raise additional capital.
The stock market, or stock exchange, is where shares are traded. The relevant governing bodies regulate all activities that occur there. In the United States, this body is the Securities and Exchanges Commission (SEC). There are various stock exchanges around the world, including the New York Stock Exchange (NYSE), which is the largest, followed by the NASDAQ Stock Exchange. The largest in Europe is the London Stock Exchange.
The stock market is open all year round. There are, however, trading hours and stock market holidays. The NYSE opens on weekdays between 9:30 am and 4:00 pm ET. These hours are important to note because people trade on this stock exchange from all over the world in their respective time zones. So while you might be done making trades by late afternoon, someone in another continent could be completing their trades in the middle of the night.
Stock market holidays for the NYSE include public holidays, such as beginning and end of year holidays like New Year’s Day and Christmas. The market is also closed on President’s Day, Martin Luther King, Jr. Day, Independence Day, Memorial Day, Thanksgiving, Labor Day, and the religious day of Good Friday. Partial holidays are observed on Black Friday and Christmas Eve, and on these, the NYSE closes at 1:00 pm ET.
Investing Versus Saving
You may have read a lot of news headlines about the shares of companies you regularly buy products from. If you are a shareholder in such a company, the news could be exciting or worrying, depending on whether you stand to lose or gain. Investing in stocks can sound thrilling, but to get the most from it, it’s important to understand the basics of what it is and isn’t.
Let’s start with the difference between saving and investment. Whatever stage of life you are in, thinking about your financial future is important. You have to answer some important questions regarding whether you have enough of an emergency fund, if you are adequately insured, and how you can plan better for your retirement. Even if you are still new in the working world, it’s never too early to learn how to budget, save, and build wealth.
Saving is putting away a portion of your income, typically into a savings account. There are various types of savings account, but in general, the interest rates are not particularly high. In 2019, the average bank interest rate on a savings account in the United States was 0.09% per annum. This was slightly higher than the checking account average of 0.06%. In essence, a savings account is just a safe place to store your money and keep its value. If you stash away your cash under your mattress or in a safe, you run the risk of having that money stolen or destroyed. Additionally, by the end of the year, your money is going to be worth a little less than it was today because of inflation. The interest rate in a savings account, although small, is enough to maintain the value of your money over time.
The great thing about putting money in a savings account is that it is safe and relevantly out of sight. With automatic monthly withdrawals from your checking to your savings account, you can make saving a habit. You may be able to find a savings account with a little more interest than the average account, but in general, you aren’t going to get rich by just saving. Saving accounts are the safe choice because your interest rate is guaranteed, and the principal amount you put in is insured. If you are looking for more interest and reward, however, you have to be willing to risk more. For higher yields, consider investing.
Investing is a great way to build wealth. When you put money into an investment account or another kind of investment vehicle, you expect a return of some sort. There are different ways to invest, and some ways have more risk attached to them than others. Examples include the stock market, the forex market, property investments, cryptocurrencies, and money-lending investments.
For 2019, the average money market interest rate in the United States was 0.16% annually. What this means is that you could have earned an extra 0.07% interest on your money had you invested it rather than saved it. It must be emphasized, however, that these figures are based on averages. Not everyone who invested made that much return or any at all – some even lost money. Ultimately, your investment returns are determined by several factors, including market analysis, experience, investment diversification, and market conditions. We go into the basics of making wise investments a little later in the article.
One clear thing is that you can grow your money much better and faster when you invest some of it rather than save all of it. Investment has more potential for higher yields. There are risks involved, and we are going to discuss these, but we hope you see now that investment can be a good vehicle to build wealth over time. Yearly statistics show that average investment returns continue to beat the average savings account interest rates.
Understanding the Risks and Benefits
Before you take your hard-earned money into the stock market, it’s important to understand the risks and benefits. There are different types of investments. The highest earning potential comes when you take higher risks. With that, however, there is also a chance that you could lose most of your money.
When investing in stocks, you are investing in particular companies. There is always the chance that the company could get into financial trouble, get hot by a lawsuit, or in the worst-case scenario, be forced out of business completely. To reduce your risk here, there are a few things you can do. Firstly, invest in companies with a good track record and a strong financial position. Research the business, watch the news, hear what experts have to say, and don’t invest all your disposable income. Another tried and tested tip in investing is to diversify your investment portfolio. You reduce your risk when you don’t buy shares in a single company. Instead, look at a range of companies that you are interested in, and buy shares in each of the ones meeting your criteria.
Unlike saving, when you buy shares, your initial or principal investment is not guaranteed. The value of the shares you own is equal to the value on that day and not the value you bought them for. If you are investing for the long-term, the daily market fluctuations should not influence you to sell as soon as you see a dip or a rise, for that matter. What affects a day-trader’s decision about buying and selling stock shouldn’t affect you as much. Short-term traders watch the market very closely each day to take advantage of these small ups and downs. They trade huge volumes of stock almost daily and are thus able to capitalize on even the smallest changes in share value.
Being aware of the risks of trading shares helps you to have reasonable expectations. Your results are not going to be the same as the next person unless you have invested the same amounts in the same companies. There is a need for caution and due diligence when investing, but sometimes people can get lucky. One of the companies you own shares in could strike a huge deal or gain inroads in a previously untapped market. This could result in a surge in the share price for that company. Sometimes you could have seen it coming from the media, but many times such situations are just an unanticipated bit of good news. Having reasonable expectations can help you proceed with caution and avoid making impulsive decisions about where you put your money.
The Best Way to Start
If you’re ready to start buying shares, you need knowledge, capital, investment goals, and a broker. A great way to start is by using a demo investment account. This allows you to play around with buying and selling shares before you use your own money.
You also need to think about your long-term strategy and how much you can set aside towards growing your portfolios. Most early-stage investors deposit monthly to build up their shares because they understand that investing is a long-term play, and they are not going to become rich overnight.
There is a lot of information available about buying shares. Do your research and gain your own understanding, but also make use of experts around you and on the internet. Many people have been investing for years, and when you tap into their wealth of experience, you can avoid making many of the beginner mistakes they made. Much of the information you need is for free, but it doesn’t hurt to invest in more intense training if you need more assistance and understanding.
When you have watched all the videos you can, read as many investing articles as you can handle, and played around with your demo account, don’t be too afraid to get started. There are many brokers you can use, and it’s never been easier to use an online broker for low charges or even for free. Always start small, and don’t be put off if you don’t experience the buzz and excitement that you hear from others around buying and selling shares. It takes patience to see returns.
One of the most critical questions of today is when the next major stock market crash is going to happen. Even though the U.S. has an abundance of high technology, it is still hard to pinpoint. All the math and science behind the stock market is complicated and sometimes challenging to figure out. However, the hardest part of the stock market is understanding what a crash means. Some people may not know that the stock market experiences little crashes that happen quite frequently. These are called stock market bubbles. The frequency of the bubbles helps speculators predict when the next major crash is going to happen.
Do you really know the ins and outs of a stock market crash? As stated before, it is a complicated situation. A stock market crash is defined by the percentage a cross-section drops in an instance. How low does the rate have to fall before it is considered a crash? The magic number ten is used as a guideline to determine if the stock market is approaching a crash. A significant problem with stock crashes is that they happen like lightning. They come flying in out of nowhere at times. In other moments, speculators can predict due to a short-term decrease in stock numbers.
The Stock Market
The best way to explain the stock market is through the process of a stock exchange. Stock exchange happens amongst industries and investors. To give you an example, a millionaire can invest in a company and trade their stocks to the current owner as partial payment. Investment plays a crucial role in the business management world. Some businesses invest in stock to keep their establishment afloat.
For some individuals, investing is a way to receive extra income. If your company doesn’t provide a retirement plan, consider spending a little bit of money into the stock market. This is a method that many people use to have income even after they retire. Keep in mind that you may not always make a profit from stocks, however. A determining factor on how much money you make depends on your agent and the stock market itself.
A common misconception is that “the more you invest, the more you make.” Nonetheless, this is not always true. A weak rule in stocks is that your agent doesn’t have to inform you if the stock you invested in is losing money. The agent cannot control the market. However, when investing, there are options to move your investment between stocks. Your agent should allow you to sign a waiver. The waiver states that, if a stock begins to crash, you give them the right to move your money into a new stock. A method like this allows individuals to make a profit from investments consistently. Most companies send you a monthly or quarterly invoice that shows the amount of money you have made or lost.
Stock Market Crash History
The history of the stock market dates back to the 1600s. The first-ever stock market crash recorded began with the Dutch tulip. The Dutch tulip was an exotic looking flower that had a true inner beauty. The tulips were imported from Turkey (the Ottoman Empire) to the western part of Europe. Due to the beauty of this flower, people all over the country wanted to buy it. These tulips grew fast into high demand. The prices began to skyrocket, and more tulips were needed. European investors started to buy every shipment. However, the speculators got in too far over their heads when the value decreased dramatically. The tulips were out of season, and no more could be grown. The domino effect from the flowers hit the Dutch economy and sent them into a depression. It took over ten years for the economy to recover.
Now that you have an idea of how a stock market crash works, let’s discuss two major U.S. stock market crashes.
The Great Depression
You probably know a lot about the stock market crash of 1929, better known as the Great Depression. The stock market crash destroyed the American economy.
Black Tuesday hit the stock market on the 29th of October, 1929. Some investors traded over 15 million shares on the New York stock in one day. Over millions of dollars were lost, and most investors lost everything. Due to the events that took place on Black Tuesday, America began to industrialize and sent the economy into the Great Depression. During this time, President Herbert Hoover was thought to blame, which killed his reputation.
In the 1920s, the American stock market expanded over twice its original size. Due to the rise of war crimes between countries, unemployment and production began to decline. Stocks were pricey and more expensive than their actual value. The aftermath of unemployment created a ripple effect through every industry from agriculture to banks. During this period, no one was able to liquidate any loans through the bank, and many people suffered. People began to sell their homes and lived in “Hoover shacks” to feed their families.
Hoover shacks were made from any material a homeless individual could find. They were not very stable and didn’t protect from any sort of weather conditions. More and more shacks were being built so that people could scrounge up as much money as possible. The area in which these shacks were located became known as Hooverville.
Once the stock market reached a point of no return, many people gained hope that it would go up in succeeding weeks. However, the economy, at this point, was too far gone, and everyone lost hope. By 1933, 95% of the banks had closed, and only 30% of Americans still had jobs. Through these dark years, Americans did everything in their power to immigrate to Europe in hopes of a better life. However, fate stepped in when the administration of Franklin D. Roosevelt came into power.
The administration fixed a lot of the symptoms the country was experiencing. Roosevelt did as much as possible to get the country back on its feet. Nonetheless, the country did not recover fully until November of 1939. This was about the only good thing that came from World War II.
The Crash of 1987
The crash of 1987 took place on the 19th of October and was named Black Monday. The crash began just the same as the crash of 1939. Speculators over traded their stocks and lost 67% of investments. Corporations began to buy out many shares, and sharing prices started to boom. Once this was all cleared, the stock market began to decrease in value as a whole. The rippling effect of these mini crashes soon began to overrun the system.
The stock market had to pull the plug on its various operations and stop trading for over a year; likewise, the break allowed the stock prices to return to normal. Speculators began to figure up some new rules to apply each quarter. One provision states that trading can only be done twice in a period to minimize a decreasing value within a stock.
The Tie Between the Stock Market and Economy
Why is the stock market relevant to the global economy? The stock market creates a turnover for commerce and industries as a global community. Think about it like this. If every country fended for themselves, how much would they be without? Some countries may experience food shortages, a decrease in the value in production, or loss of power. Countries trade more than just products; they trade-economic methods to help evolve and grow as one. The global community can set aside cultural differences to help aid in one common goal, growth.
The stock market makes up over a quarter of each country’s economy. It seems like a lot of pressure to put on one system; however, it has helped keep most countries afloat in desperate times.
The Next Stock Market Crash
If you have money invested, it may be time to start asking about the frequency of stock bubbles. The more frequent bubbles happen, the more likely the stock market is to crash. Even with the technology of today, it is difficult to pinpoint an exact date for the next stock market crash. However, even if the stock market crashes, our economy is thriving at the moment, so it probably won’t create another depression.
The market is evolving every day and continues to change with current events. What some people may not know is that the climate plays a significant role when it comes to the stock market. Climate change may increase or decrease the production of a product. The environment also affects the shipments and trades when products are imported.
All in all, the stock market is something to pay attention to. Make sure you are reading up on current events in the global economy. The fall of one country may create a hiccup in another. Set up an appointment or meeting with your present agent to help understand the value of a stock you have invested in. There are no stupid questions, especially when it comes to your money. Never be afraid to take charge of the situation. Also, consider the option of money movement to keep a positive outlook on future profits. This method ensures that, even if the stock market crashes, you may still make some sort of money. The more your investment is broken up, the more you can make.
The value of money is decreasing rapidly, and the prices of products are increasing. Remember to make smart moves when it comes to investing. Research as much as possible before sitting down with an agent. Look into various companies in certain areas. You do not have to invest in a company that is in your state. Some believe it is smarter to keep investments in an establishment that is further from your home because it decreases the urge to pull out of the market.
Technology is making it easier than it has ever been to invest and keep up with the stock market. You can use apps to track developments in different economies, invest, and keep track of your portfolio and finances. Some people are hesitant to rely too much on technology when it comes to the stock market, but we wholeheartedly recommend giving some of these technologies a go and seeing if they work for you. This article covers some of the best apps for investing and banking, as well as for understanding the stock market and keeping abreast of changes that are relevant to you and your portfolio.
You may be a little hesitant in trying out these technologies, but many of them offer a free trial period, which is helpful in deciding whether or not you want to take the plunge and make them a part of your routine when it comes to the stock market. Some can also just be used purely for obtaining or keeping up with information regarding the stock market or financial developments in the world, so it does not actually necessarily involve your finances directly.
Stocks Live is an app that can be used both on the iPhone and iPad, and it offers a wealth of features that make it easy to keep on top of changes in the stock markets around the world. It offers real-time coverage of global events that are relevant, as well as live quotes for stocks, which is a real help if you are involved in swing trading or you want to follow as closely as possible with developments in different stock markets. Stocks Live is not limited to a single currency, so it lets you track several different major global currencies. This feature is advantageous if you are interested in investing widely outside of the US economy.
The app also makes it easy and straightforward to search and track stocks, as well as mutual funds and ETFs. It would perhaps be best-suited to somebody who is busy but wants to keep up with developments in different markets as much as possible while they are on the go. Stocks live provides concise and condensed information, as well as makes it possible to search for further information on matters that are relevant or of interest to you. You can create your own watch list, and there is no limit on how many stocks or shares you can add to it. This means you could potentially keep track of prices of thousands of stocks at a time, if you so choose.
It is also possible to use Stocks Live to search for fairly comprehensive information on many different companies, if you are interested in purchasing shares in them but are maybe a little skeptical or apprehensive about them. Stocks Live often provides comprehensive analyses or breakdowns of such companies, as well as estimates of their earnings in comparison to competitors they may have.
Another great feature of the app is that it lets you set up hypothetical scenarios of earnings of your portfolio based on predictions or forecasts of its analysts. You could therefore build up a mock portfolio and then see projections of how well it should perform based on the data that Stocks Live has available at the time. This makes it useful to people who are maybe not too experienced in investing or who are looking to branch into different asset classes and would like some type of guidance or forecast before putting real money into it. This is coupled with the fact that Stocks Live offers comprehensive support around the clock, and it is generally oriented towards providing the best experience possible to customers.
Another app that is highly useful for following along with developments in the stock market is Stock Ratings. The app is free, and it offers its users a thorough breakdown of developments in the market. Users get a daily update on different trends, analyses, and strategies of happenings in different stock markets around the world, as well as analyst advice on how to build up or develop your portfolio and which stocks are trending up or down. The app consolidates this information into one place, which makes it easier to keep track of and manage, generally speaking. It is possible to look at historical ratings, and the app currently follows the New York Stock Exchange, Toronto Stock Exchange, NASDAQ, and the London Stock Exchange.
This app is a good option for those who are into the nitty-gritty of stocks and finance, so to speak. Stock TickerPicker is an app that could be a good choice to complement technical analysis that you may do or follow along with regarding stocks and the market. The app is essentially a collection of various relevant charts to the stock exchange, and it also consolidates other information, like stock quotes and watch lists. It is optional to pay a small fee and have thereby access to other, more detailed information, like investment research. The app supports both the major stock exchanges (NYSE, TSE, NASDAQ, and LSE) and other markets around the world.
Real Time Stock Tracker + Alert
Real Time Stock Tracker + Alert is a free app that consolidates information relevant to stock that is generally useful for those involved in trading or investing to have access to. This includes information like real-time quotes, tracking of a portfolio, and alerts regarding the market. One feature of the app that is especially useful is that it is possible to keep track of more than one portfolio at a time, which makes it great if more than one person wants to use the device that it is on or if you have several portfolios yourself and want an easy way to keep on top of developments that are relevant to all of them.
The app also provides fairly detailed data and analyses regarding price and volume, as well as relevant news, and it is possible to have quite complex charting for different geographical regions, like Asia or Europe. You can also use the app for real-time tracking of Bitcoin prices, which is a fairly unique feature, and obviously useful if you have any interest in cryptocurrency.
Apps nowadays can also be used for heftier tasks like investing. E-Trade was one of the first brokers to offer online investing, and it has been fairly groundbreaking in that respect. The firm began to serve customers online when the internet was in its early days, and it has continued to pioneer in innovative digital solutions for finance and investment. E-Trade is a trusted name in the field as a result, and its app is far ahead of many of its competitors. It offers a handful of advanced features that allow you to make the most of your trading and investment opportunities. There is also no account minimum, which makes it somewhat easy compared to its competitors in terms of actually beginning to invest with the app.
Some of the more advanced features that the E*Trade app offers include a performance risk tool, which lets you forecast to some degree how your portfolio can perform based on relevant data that the firm has and the algorithms they use. To have access to these features, however, it is necessary to use the Power E*Trade app, as they are not available on the standard one. Therefore, you need to use both of the apps if you want to use all of the features that E-Trade offers with regards to trading and investing.
Fidelity carries out and offers results from very high-quality research in investment and the stock market, and they now have an app which lets you access this data with relative ease and convenience. The apps have been designed to resemble the experience that users have on the desktop site as closely as possible, which means they are fairly comprehensive and offer an impressive range of information and findings. The app is also universal to iOS and Android, so the experience that you have as a user is the same regardless of the platform that you use the app on.
It is also possible to use the same app across several different platforms and integrate the experience so that you receive the same tailored information and do not have to adjust settings if you go between, for example, an iPad and an iPhone. There is also a game on the app, called the Five Money Musts, which is geared towards helping those new to investing understand how to best get started and gain a foothold in the market. Fidelity also offers a news feed so you can receive information to your device which shows developments and updates in the market, as well as news that is relevant to finance in general from global events, more broadly speaking.
The Bank of America now owns a subsidiary company known as Merrill Edge, and they have an app which allows you to link your bank account or banking activity to your investments for a more integrated and straightforward way to invest. The mobile app has a portfolio summary available, which shows you your portfolio, as well as developments that are important to see. Through the portfolio, you can also see statistics related to the performance of your portfolio, and these can be customized depending on what you wish to emphasize or focus on.
It’s fair to say that the app is quite oriented towards giving customers a developmental and positive experience with investing, and there are therefore many features which emphasize helping customers understand the market and their portfolio and make the most of their finances. For example, there are several tools available that can be used for setting financial goals and planning financially or with regards to stocks that you might own. This is especially useful if you are not used to projecting very far ahead with your investments and makes it much easier when you can visualize the trajectory you would ideally want your portfolio or finances to experience. There is also a website, which is useful if you want to access the service from different platforms.
Strategic emerging companies have become significant drivers and achievers of restructured industries in the current global economy. Liu & Meng (2017) hold that innovation and technology are the leading strategic approaches adopted by these emerging companies and industrial sectors, which have also much challenged and influenced traditional players in their sectors. Tesla, Inc. (NASDAQ: TSLA) is one of the emerging companies that have brought irreversible change to their industries and laid out a roadmap for the future of these sectors in terms of technology and innovation. As Thomas & Maine (2019) note, the entry of the company has transformed the automotive industry globally, irrespective of the vast uncertainties held by the bears regarding the future of the company. The company has since its founding experienced dynamic growth despite various financial setbacks at different points of its growth cycle. The varied opinionated predictions of stock prices and growth increase the indecisiveness of investors as the company continues to grow and expand to different geographical regions and in product perfection and differentiation.
Tesla Tesla (TSLA) has experienced growth since the inception of the company. In an article on CNBC, Hecht (2019) notes that the company had a 1,000% growth in market value since 2010 when it began its stock sales. Consequently, the share prices have grown over these years. The development has been attributed to different factors, including the company’s business model, innovative approach, marketing strategies, and the CEO who has become the face of the company, among other aspects. Ron Baron, one of the billionaire investors, during an interview in CNBC in June 2019, held that Tesla’s share price was likely to get to $1,000 by 2020. Whereas this prediction may seem unrealistic, the current trading and trends of the company stock prices indicate great potential for the achievement of this goal. Considering current share prices, the niche operated by the company and competitors, Tesla’s visionary leadership, sustainable technological approach, and the overall future of electric vehicles, Tesla’s share prices will hit $1,000 in the future, since it has developed to a leading and disruptive company in the automotive sector.
This research argues that, although the company has had non-profitable fiscal years in the past recording yearly drops and highly volatile stock prices, the current operations indicate excellent potential for growth in the future where the share prices could hit an all-time high of $1,000 each. The rest of the paper has different sections, including the state of Telsa, internals, and fundamentals of the company, its leadership, roadmap, competitors, market analysis, an argument on where the stock price will reach $1,000, and the conclusion.
The State of Tesla
For more than a century, the automotive industry relied on internal combustion engines until the inception of an alternative that saw the rise of electric vehicles (Sierzchula, Bakker, Maat & Van Wee, 2012). This new dawn in this sector led to the birth of Tesla, an automotive company that was founded to provide substitutes for gasoline vehicles by using technology to develop highly efficient electric cars. Founded by a group of engineers in 2003, the company looked to improve efficiency and sustainability in the automobile sectors by producing products that used less energy and emitted little or no pollutants, while at the same time serving the needs of its consumers (Gebert, 2014). Headquartered in Palo Alto, California, Tesla ventured into a unique niche and partnered with different companies to achieve its envisioned purpose and products over the years (Gebert, 2014; Cecere, Gambino & Mollura, 2016). Aside from the geographical expansion and growth, each product has marked improvement in technology portraying vast innovative ideas and potential for improvement in the future.
With its sportive customer perspective, the company in 2008 introduced the roadster model, which was unique in every way compared to products by other players in the sector (Cecere, Gambino & Mollura, 2016). According to Cecere, Gambino & Mollura (2016), the car had unique features, “accelerating from 0 to 60mph in 3.7 seconds and achieving a range of 245 miles per charge of its lithium-ion battery.” Compared to gasoline-powered vehicles and the environmental impact of this product, the efficiency of the car was undoubtedly unique and also achieved the sustainability goal of the company. Although the product did not reach the intended or targeted market share, it paved the way for technological advancement to produce a more advanced model that acquired a higher market share with each production (Cecere, Gambino & Mollura, 2016). One major setback was the high price of the vehicle, indicating that the company had to provide a cheaper priced model through improved production.
Aside from changing the nature of the products to meet its market share, the company also intended to increase its production by raising the number of units produced annually while at the same time targeting a broader customer base. In 2010, on the verge of bankruptcy, Tesla announced its intention to go public to raise funds for its continuity (Cecere, Gambino & Mollura, 2016). The move became a success with the stock selling at $17 per share (Hecht, 2019). Before going public, the company had attracted the interest of venture capital companies and private investors (Cecere, Gambino & Mollura, 2016). The current CEO became the highest private investor with $7.5 million after joining the company as chairman of the board of directors. According to Cecere, Gambino & Mollura (2016), the company had sold stock worth $13 million to other private investors in 2005. Later, shares were sold to eBay and google as technology partners before publicizing the company in 2010. The various shareholders have consistently expressed their hope in the electric vehicle company over the years, despite the company operating at a loss.
Like many other tech companies, Tesla has managed to maintain its niche by increasing its innovation strategies compared to the mature competitors in the automotive industry. Most of these mature operators such as General Motors and Ford have had a stable market cap in the past close to five years compared to tech companies such as Apple, which have experienced consistent growth over the same period. As of 2017, the market capitalization of General Motors (NASDAQ: GM) was at $50.60B compared to Apple (NASDAQ: AAPL), which was at $745.48B, as shown in Figure 1 below. Tesla lies between the two groups as an automotive and tech company, explaining the increasing growth of the company. Therefore, the development of this automotive company is expected to surpass those of traditional automobile companies and be closer to that of tech companies. This has been evident in the recent increase in the stock prices of the company going beyond those of other automobile companies (Reinicke, 2020).
Figure 1 Source: Ycharts
The Current State of Tesla
Lying in between tech and automobile companies, as shown in Figure 1, Tesla competes with other car manufacturers and also strives to remain innovative and competitive among other tech companies. This has been the leading strong point towards the differentiation ability of Tesla and the success source in production and operation. As mentioned by Hecht (2019), the company has experienced a 1,000% growth in its market value, considering the $17 share price in 2010 and the $230 range as of August 2019. The trend has continued, and as of December 2019, the company’s shares were selling at $393.15, a 3.74% rise from the previous day (Feuer, 2019). As predicted by Ron Baron during his interview at CNBC, Tesla’s share prices have continued to increase every day. As this trend continues, the market cap of the company is also growing, attracting more investors and increasing skeptic comments from the bears.
True to Ron Bron’s prediction, Tesla’s stock price as of 9th January 2020 was at $498.44 and showing an indication of continuing the upward trend (Reinicke, 2020). This is amidst the predicted capital shortages in the company despite the optimistic investment advice coming from the bulls, who still believe that the company is headed for more success. However, it is difficult to ignore the past experienced volatility of the company’s stock prices. In Figure 2 below, presented by Hecht (2019), a close to ten year period of comparison shows the prices rising to very high figures and later dropping. The figure shows that, since 2013, the company has experienced growth with the stock prices increasing each year.
Figure 2 Source: Hecht 2019 (CNBC)
On the other hand, it is evident from Figure 2 that the prices have experienced sharp drops in share prices, such as in the last quarter of 2014, where the price dropped to below $150. Other periods were good business periods for the company whereby the share prices went to all-time highs, such as in 2017 exceeding $350.00 (Hecht, 2019). Additionally, the chart shows that, at the close of this day in August, the stock price was at $218.77, compared to $393.15 in December (Feuer, 2019), which is absent in this chart. This indicates the possibility of the price fluctuating from high levels to lower ones and vice versa. However, the company is currently experiencing consistent growth, which, according to the CEO, should last longer than the skeptics anticipate.
The growth being experienced by the company may be short-lived as past experience has proven, irrespective of high hope by various investors regarding the sustainability of this growth. After raising money and investing in projects to increase production, the company’s assets and revenue have grown (Molnar, 2019). However, as Molnar (2019) states, concerns regarding the growth of income without profitability cannot be ignored. Molnar also holds that future predictions have been made based on these revenues, which do not consider the lack of profitability of the company, even after being operational for close to two decades now. As shown in Figure 3, the company began experiencing growth of share price since 2012, which remained consistent until it reached the highest price, exceeding $350 in the first quarter of 2017. This is similar to the current state of Tesla, where prices have hit an all-time high and are expected to continue in the next few days.
Figure 3 Source: Molnar 2019 (Forbes)
However, the trend changes after reaching the highest price of the shares, and a drop begins. After achieving this all-time high share price in early 2017, the company began experiencing a gradual decline in the stock prices, accompanied by fluctuations that increase the uncertainties of investors (Molnar, 2019). These fluctuating prices led to a dramatic drop in the share prices in the first quarter of 2017, as shown in Figure 3. The same trend can be expected in the future of Tesla, which is currently experiencing growth. Whereas the profitability of the company remains the primary issue of concern for many individuals and interested investors, the question as to whether the company is overvalued still lingers as divided opinions differently define Tesla (Molnar, 2019). The growth has, however, been experienced in other dimensions in the company, from geographical expansion to market coverage.
Tesla rose to become the valuable leading carmaker in the US after overtaking former giants Ford and General Motors in 2017 and lately in 2020 (Reinicke, 2020). The market cap of this company exceeded that of both Ford and General Motors, although it continues to fluctuate (Reinicke, 2020). According to Hecht (2019), Tesla has never managed to remain profitable throughout a fiscal year but instead reports profitability over different financial quarters over several years, despite the continuous rise in the price of the shares. This is despite the company remaining the leader in the production of electric vehicles and covering both local and global markets, whereby according to Sierzchul et al. (2012), the competitiveness of this sector is expected to increase, as the industry is still in the introductory stage. From this perspective, it shall be crucial for the company to focus more on profitability than on expansion.
Tesla minimizes costs by producing most of its raw products. The company owns a Giga factory in Nevada and also has several assembly and production plants (Gebert, 2014). The primary manufacturing plant for its vehicles is in California. The main products sold by the company include its latest car, Model 3, Model X, and Model S. Currently, Tesla has expanded to solar production after taking over Solar City and thereby produces energy generation products. These include batteries (Powerwall and Powerpack batteries) and solar panels, as well as solar roof tiles, all of which have contributed to the goal of the company in promoting the use of sustainable energy.
The Internals and Fundamentals of the Company
Tesla has been rising in stock prices and popularity as the sales increase each year, a trend that has been viewed differently by analysts. The stock price of the company grew from $17 in 2010 to the current range of $450 in January 2020, a 1,000% increase (Hecht, 2019). Whereas investors in the company have supported this trend, some analysts believe that the company has been overvalued since it is still struggling to find a stable position in the automotive industry, which already contains mature companies. However, the company continues to focus on increasing production and the quality of its products in an attempt to establish its position as the leading electric car manufacturer globally. Just like any other company, Tesla has had several legal issues, including the recent scandal with its CEO. According to Feuer (2019), the SEC sued Elon Musk, the CEO, for a post on Twitter, where he claimed that he was considering securing a percentage of the company’s shares. Although the matter was settled internally where Musk was forced to pay a fine, such sentiments may affect the company’s performance considering the impact they might have on investors.
The company is rooted in manufacturing and innovation fundamentals. Tesla concentrates more on improving its operations through the use of technology. This is evident in the organization’s decision to use social media marketing instead of traditional advertising methods. Riley (2019) considers this a fundamental requirement in the electric car market, terming it a competitive technological market. Technology is vital, and Tesla continues to focus more on research and development (Bhavani, 2018). Bhavani (2018) states that the amount spent on research and development has reduced for the company with a 6% decrease from 2015 to 2017. This can be attributed to the company’s ability to cut on some costs, especially after the construction of Giga factories. Most of the other expenses increased during this period, including selling general and administrative and employee and labor (Bhavani, 2018). The company aims to reduce its production costs for it to provide cheaper vehicles. However, each model produced has not met this goal, and the company continues operating at a loss. It has also not been able to pay dividends to its investors despite reporting increasing revenues for the past few years.
Leadership at Tesla is highly associated with CEO Elon Musk, who, according to Wagner (2020), is the most influential figure in the company. Whenever Musk is mentioned, Tesla appears in the picture, and whenever Tesla is mentioned, Musk cannot be left out. The achievements of the company have been termed as visions of Musk, which he addresses as his vision for the company. Musk is in charge of the product strategy of the company and is also among the founders of the company (“Tesla Management”). Another prominent figure at Tesla’s leadership is the chief financial officer. The former CFO Deepak Ahuja resigned from his position in 2019 after being blamed for the company’s financial problems (Atkins, 2019). Whereas this was the second time the CEO was resigning, the company has not had any successful years of operation and is still unable to pay dividends to investors. The current CFO is Zachary J. Kirkhorn (“Tesla Management”). His responsibilities as CFO include “leading accounting, financial planning and analysis, treasury, M&A, tax, investor relations, and internal audit” (“Tesla Management”). He has worked in the company since 2010 and is expected to bring financial changes to the company.
Another influential figure in the company is the chief technology officer Jeffrey Brian “JB” Straubel. He is one of the co-founders of the company and is tasked with overseeing engineering and technical designs of the cars developed at Tesla. Incorporating a co-founder in the leadership team is a good strategy for the company that has helped lead the company towards the achievement of its goal. In a critical analysis of the company’s leadership challenges, Atkins (2020) notes that one aspect that the leadership needs to cut on is the costs involving them, such as international travels of a single person. However, this can be challenging for a developing company, which needs to sell itself beyond the US borders. Additionally, the company needs to maintain its current CEO, who has an excellent vision for the company and also has the best interest as a co-founder.
Since Tesla began its operation, the company has focused on growth, especially increasing the market capitalization of the company, which equally increases the value of its shares (Kancherla & Daim, 2018). The company first released its model, Tesla Roadster, in 2008 and sold about 1800 units the same year, as shown in Figure 4 below. Since then, the company has experienced increased sales for its products. The release and sale of Model S exceeded that of the Roadster and sold 20000 units annually (Figure 4). Although the figure below does not include the recent Model 3, it has been the best sale of the company. The model gained acceptability globally and sold more units than any other model.
Figure 4 Sourced: CleanTechnica.com
The company has also increased its production over the years. In 2019, Tesla exceeded its production goal (Reinicke, 2020). Additionally, it was able to deliver more than the cars produced by its Shanghai Giga factory. Similarly, the revenue of the company has experienced an upward trend that is similar to that of the amount of sales made each year (Reinicke, 2020). However, Tesla has made no profits since the beginning of its operations. Although the company is considered successful, it hasn’t been able to pay dividends to its investors. The company has also had financial challenges by running out of cash, forcing it to sell its shares. The future of Tesla may be assured of financial success, considering the current trends in production, sales, and stock prices.
Tesla operates in the American and global automotive industry, covering both the local and international markets. The company adopts high technology to develop its products, which aim at improving energy sustainability (Kancherla & Daim, 2018). The overall purpose of the company requires high innovation and technology, which makes it both a high tech and car manufacturing industry. As illustrated in Figure 1, the operation of Tesla will most likely lie in between the high tech companies, such as Apple and Amazon, and that of traditional car manufacturers, including General Motors and Ford, which are critical operators in the country. The market cap of the company has also currently exceeded those of these incumbent car manufacturer, confirming this approach (Reinicke, 2020). However, the involvement of the company in two highly competitive industries increases the number of competitors for the company.
In the automobile sector, most car manufacturers have been reliant on gasoline-powered engines, which provided the niche for Tesla. However, the products produced by these companies still offer substitutes for consumers. Currently, most car owners use gasoline engines, primarily due to the availability and affordability of the products. As a battery-powered car manufacturer, Tesla faces stiff competition from gasoline-powered vehicles, which, unlike tesla products, have highly available accessories, including gasoline stations. Additionally, the availability of gasoline substitutes in parts of the world unreachable by Tesla has further increased the competition for the company. According to Hecht (2019), the company has not reported a profitable fiscal year since it began its operation. It will be necessary for the company to develop products that substitute gasoline-powered vehicles at an equal measure to overcome this competition.
Another factor of competition in this industry is the availability of cheaper vehicles, unlike Tesla, which has highly-priced electric cars. Although there are no more affordable electric cars, gasoline-powered cars are cheaply available for consumers. Despite the intention of the company to expand to other regions, its inability to produce cheaply available vehicles may be a setback. According to Sierzchula et al. (2012), the costs involved in the manufacturing of electric cars have been a challenge for the production of cheaper models and, thus, the inability of such companies to serve an extensive market limiting its market to those with significantly higher incomes and environment lovers. Most consumers will purchase products based on their prices, where price has more influence than other factors. Tesla intends to produce cheaper cars, which will not only increase its market share but also may lead to a profit increase for the company.
On the other hand, the company competes among other technology companies in an attempt to remain highly competitive in the market. This is due to issues related to intellectual property ownership. One of the factors that have led to the high pricing of the company’s products is the high-end technology used by the company for its products Sierzchula et al. (2012). For instance, the autopilot factor in its latest model comes as a factor in attracting customers. Although the accident involving one of Tesla’s electric cars while self-driving has become a major legal issue for the company, it is one of the aspects absent in the cars produced by its competitors. However, the company needs to pioneer more technology that it might require in the future development of the company’s products. Owning intellectual rights to a particular technology is significant in maintaining its use and reaping its benefits, either by developing its products based on this technology or by patenting it for use by other competitors. On the other hand, purchasing the rights for the use of these technologies may be expensive. It may limit the development of products to acceptable consumer levels, increasing the lack of competitive advantage of the company.
The electric car production industry is still at the introductory stage, as Sierzchula et al. (2012) hold. It is expected that more companies will join the industry, thereby increasing competition. Currently, Tesla is the leading company in the production of electric cars, but this may not be the case in the future if the company is not able to maintain its competitive advantage. New entrants will increase the competition, which will equally attract other competitors. Incumbent car manufacturers have begun exploring these possibilities, although not many have been successful in the sector Sierzchula et al. (2012). However, as they continue becoming more innovative, it is expected that the companies will increase their production and specialization in more sustainable products, an issue which is currently listed among the objectives of many companies. The continuation of this trend will increase the competition in the electric vehicles manufacturing sector, which is now still low compared to other sectors.
One of the expected trends in the competition is the production of unique products by each company with different technological characteristics. Innovation is expected to increase, and new inventions dominate the car manufacturing sector to increase the comfort and luxury of each product. The inventions will also involve patenting, which will increase the threats associated with intellectual property rights. Many companies will invest more in research and development, which will consequently increase the capital spending of each company, including Tesla (Sierzchula et al. (2012). Anticipating such trends in the future is useful to maintain a competitive advantage for each company. For Tesla, preparing for such threats in the future can be easier, especially if the company is able to establish its market share before the entry of other competitors in the sector.
The current competitors of the company are other automotive companies. As mentioned above, these companies are dominant and mature operators in the automotive industry. The companies have established markets that they serve and enjoy customer loyalty for their different products. According to Gebert (2014), the availability of substitutes for consumers is one of the challenges for any company. In the case of Tesla, the available alternatives are the gasoline-powered vehicles produced by its key competitors. Additionally, the company has only three different cars available for its products. Compared to other companies, the company lacks a variety of options for its consumers, which increases the competition from other competitors. The company should focus on increasing the availability of choices, which is also an influential factor for attracting customers. Although this may increase the capital spending of the company, it can be useful to maintain the market share in the future when other entrants grow the competition.
The electric vehicle market is still in the introductory stage and is still growing and expected to expand by incorporating new technology (Sierzchul et al., 2012). According to Sierzchul et al. (2012), the industry has, however, not achieved its primary goal of offering alternative and sustainable methods of transport, which are environmentally friendly. Tesla, the leading company in this sector, has not been able to provide affordable electric vehicles to the general population, considering that all of its cars are highly-priced, making it a luxurious brand, unlike its competitors. Additionally, Sierzchul et al. (2012) claim that another barrier to the complete adoption of this technology in transportation pertains to the different batteries, which have brought a significant difference in battery performance and the trade-off between these products. This aspect is critical for the electric vehicles niche, which is highly characterized by product quality and differentiation (Chen & Perez, 2018). Therefore, focusing on developing the most appropriate and competitive products is vital for this sector.
On the other hand, the electric vehicle market portrays an excellent potential for growth. This trend is evident from the current position of Tesla, which has marked consistent growth since inceptions, despite struggling with financial setbacks at different points of its life cycle. One significant driver is the concern associated with climate change. In recent years, individuals, organizations, and governments have been at the forefront of reducing the causes of climate change, whereby industrial and regular activities are the leading contributors to global warming (Thomas & Maine, 2019). According to Thomas & Maine (2019), automotive emissions are among the highest source of pollutants in the environment. Therefore, the introduction of electric vehicles is set to gain high acceptance and support all over the globe, evident from Tesla’s operation and market coverage. With this in mind, the market for the items produced by the company has to achieve environmental sustainability, which has been the leading goal of the company. It also indicates that the products have a ready market.
After the recent rise of Tesla as the most valuable car manufacturing company above incumbents such as Ford and General Motors, more attention has been directed to the market served by the products produced by the company (Cecere, Gambino & Mollura, 2016). Among these products include solar products, which, despite being unrelated to car manufacturing, are a significant contributor to the mission of the company. However, the growth has been termed as a market overreaction, but the company investors consider this a continual development of the company (Thomas & Maine, 2019). This move can be regarded as an overreaction when compared to incumbent car companies such as General Motors, as seen in Figure 1. On the other hand, as a tech company, the growth in market value may not be a market overreaction but instead a permanent-growth trend considering the products, production strategy, and market strategy adopted by Tesla compared to other automotive companies. However, the company’s products are still leading in the US electric vehicle market, as shown in Figure 5 below, whereby Tesla electric car models are the most purchased.
Figure 5 Source: Forbes
Conducting an industrial analysis of the electric vehicle market can assist in determining the market position of the company. This sector is characterized by specific consumers who have limited bargaining power. Electric vehicles have a higher production cost, which has made their prices be hyped, limiting the number of consumers. Tesla, in its production, has tried to produce the most affordable cars, which are still expensive for the majority of the global population, making it a luxurious brand. Whereas the high prices can be attributed to the production expenses, consumers have no control over the prices set by the company. This is because the company may not be able to switch costs and also due to the difference in the accessories (Gebert, 2014). According to Freur (2019), Tesla had intended to reduce some of its costs this year to offer affordable electric cars and increase profitability, primarily in its Giga factory in China. However, Freur (2019) asserts that no significant progress was made in achieving this goal, considering that the Model 3 sedans made in China did not reduce in price. This event indicates the little bargaining power of the consumer in this sector.
The supplier bargaining power in the electric vehicle sector began being very low but continues to change over the years. Gebert (2014) claims that the bargaining power of the suppliers is higher, considering the available battery manufacturers dealing with Tesla. According to Gebert, there are few suppliers of these critical products, which increases their bargaining power. However, as the company develops, it has formed alliances and built factories allowing it to eliminate most of these challenges. The company partners with Toyota and Daimler to ease most of its costs, and has also opened a Giga factory to produce its batteries. In the future, the bargaining power of suppliers will reduce.
On the other hand, the rivalry among companies is expected to increase as more companies venture into electric car manufacturing. Although the threat of new entrants may seem highly possible due to the appealing potential growth of the industry, the large capital requirements are likely to discourage new entrants. Gebert (2014), however, claims that the threat of new entrants remains high, considering that as the entire globe moves towards sustainability, the incumbent automotive industries are likely to be attracted to the market niche of electric car manufacturing. This will increase not only competition, but also the availability of substitutes, which is currently very low (Gebert, 2014). An assessment of this industry indicates that the future will be characterized by a higher competition, which requires Tesla to develop a sustainable competitive advantage to protect its market share in the future.
Tesla has a broad market coverage, with its products reaching its customers around the globe. According to Wagner (2020), Tesla’s Model 3 is currently the best-selling electric car globally, as shown in Figure 6 below. The USA is the company’s primary market, which comprises a majority of high-income earners since the brand has developed to a luxury brand due to the high prices of the cars. Wagner states that the country leads in the purchase of the Model 3 cars produced by Tesla ahead of other countries. China comes in second with a significantly high market share, which is ahead of most European countries (Statista, 2020). This can be attributed to the opening of a manufacturing plant in the country, allowing the products to be readily available for purchase locally. In Europe and the Netherlands, the leading consumers are Netherlands and Norway (Statista, 2020). This market coverage is expected to increase in the future, whereby the CEO Elon Musk expressed intentions of the opening of a Giga factory in Berlin (Freur, 2019).
Figure 6 Source: CleanTechnica.com
Another significant factor of the electric car market is the criticality of product differentiation, which significantly influences the revenue and market share. Comparing the different products developed by Tesla, the first model failed to meet the expected sales revenue, production target, and anticipated profits. The car did not sell as expected, making the company advance its second production. As a high tech and innovative company, Tesla has increased the quality and competitive aspects of each product released to the market, making each better and more acceptable in the market. This is evident from the acceptability of the first electric car compared to the last Model 3, which, according to Wagner (2020), is also the best in quality among the three.
Chen & Perez (2018) hold that the Tesla has achieved its market share by strategically developing highly competitive products that serve the current interests of not only its customers but also those of the entire globe, which has made the company succeed in a high-end market. By dealing with products that improve energy sustainability and environmental efficiency, Tesla has managed to create a market for other companies willing to venture into the sector, not only in the automotive industry, but also in other products, making the company attractive to foreign governments that could provide an opportunity for growth and expansion to other countries.
An Argument on Why the Tesla Stock Price is going to reach $1,000+ Per Share.
The Trend of Stock Prices
According to Hecht (2019), Tesla stock prices have grown by approximately 1,000% since 2010. When Hecht 2019 made this prediction in August, the company’s shares were trading at a range of $230. As of 9 January 2020, the share prices have risen to $498.44, indicating a growth of more than 1,000% from 2010, as shown in Figure 4 (Reinicke, 2020; Hecht, 2019). In one decade, the company has experienced this dynamic growth, which implies the possibility of continued growth in the next decade. Adopting a similar growth rate indicates that the company will achieve more than $1,000 for each share. The current growth strategies of the company also envision the same dream increasing the possibility of the achievement of this dream. Aside from this predictable growth strategy, the company has several other factors that will contribute to this increase in stock price.
Concerns regarding investing in Tesla are associated with the fluctuating prices of the company’s shares and the perception that the company is often overvalued based on products produced. However, as evident from Figure 7 below, the share price in 2019 reached the lowest price in June when it reached below $178.97 (“Tesla – Stock Price History | TSLA,” 2020). The company experienced the lowest stock prices in 2010 when the price reached $15.8. In the same year, the highest share price was $35.47. This year (2010) was when the company went public, whereby the stock prices marked a good start. Five years later, in 2015, the average stock price was $230.04 with a high of $282.26 and a low of $185, marking a growth of more than 300% growth since 2010. The highest annual change in the share prices was between 2012 and 2013, whereby the company experienced a 344.14% change. The stock prices declined in 2016, marking a -10.97% annual change, which can be associated with the Solar City merger. However, the company was back on its feet again in 2017, marking a consistent growth until the close of 2019 with a stock price of $418.33 (“Tesla – Stock Price History | TSLA,” 2020).
Figure 7 Sourced: Macrotrends.com
The ability of the company to maintain consistency in the growth of stock prices is an indicator of its ability to continue growing in the future. This was amidst the financial crises during the ten years and the merger with Solar City, which had a significant economic impact on the company. According to Huang (2019), the stock prices of Tesla experienced an immediate slump after announcing the Solar City merger. On the other hand, Solar City’s prices began to rise after this merger, having suffered a decline, as illustrated in Figure 8 below. Comparing the two companies, the alliance was more beneficial to Solar City concerning stock prices. Whereas this might have had a negative impact on Tesla’s prices, its positive influence on the other company indicates the high value associated with Tesla. Additionally, the ability of the company to regain its steady growth shows the ability to maintain the same in the future, which may lead the company to $1,000 per share.
Figure 8 Source: Huang (2019)
An analysis of the 2019 stock price trend of Tesla also shows different rates of growth during different months, as shown in Figure 9 below. The fluctuations in the share prices are evident, especially between the different months. The company experienced the lowest stock price in June, as mentioned above, when the price reached $178.98 (“Tesla – Stock Price History | TSLA,” 2020). However, the same year recorded the highest rate since 2010, after hitting $430.94. This is the highest experienced price, which shows a growing trend in the company’s value of shares. In 2020, the price has exceeded all prices in the company’s history. As predicted by Ron Baron, the price reached an all-time high of $498.44 on 9th January (Reinicke, 2020). The prices still show indications of increasing as the growth trend continues. Reaching $1,000 per share may be closer than anticipated considering that the company may reach up to $600 and $700 per month.
Figure 9 Source: Reinicke, (2020)
Growing Company Revenue
Another factor that may contribute to the increase in the share prices is the increasing market share of the company evident from the growing revenue of the company. In the past years, the company has been increasing its production units, intending to service the increasing number of consumers. In 2019, the demand for electric vehicles from Tesla had risen in the European market, encouraging the opening of a Giga factory in the region, which, according to the CEO, will help serve these customers. Expansion to the European market will equally contribute to the growth of the company. According to Feuer (2019), the opening of the factory is anticipated in the coming year. This is the same period during which the company is expected to produce its new model, Model Y, which is also likely to increase the demand for electric cars in the region. Each model Y vehicle will sell at $39,000 to $60,000 a rate, which may not be too expensive for most buyers, especially in the European region (Feuer, 2019). The introduction of this model may increase sales and contribute to the growth of the company.
The company’s revenue has increased consistently over the past ten years. The income of the company has grown from $14.74 million in 2008 to $21,461.27 million in 2018, as shown in Figure 10. This growth in revenue indicates increasing sales of Tesla’s products. Huang (2019) calculated the growth rate each year, whereby from 2013 to 2014, the company experienced a 58.85% revenue growth. In the following period (2014 – 2015), the revenue growth rate reduced to 26.50%, increasing from 3196.36$ million to 4046$ million, as shown in Figure 10 below. The company’s revenue increased by 73.01% (2015-2016) and 67.98% (2016-2017), a trend that has continued in 2018 and 2019 (Huang, 2019). The consistent increase in revenue has also coherently increased the share prices over the years, although the fluctuations have been occurring throughout the period. Since 2018, the revenue has continued to increase, as has the share price of Tesla. Similarly, the market stock price is expected to increase as the revenue continues to grow, equally increasing the market cap.
Figure 10 Source: Statista.com
Each year, the company has targeted an increase in produced units, which is expected to increase in the future as the company reaches a broader market. Other regions, including Asia, have experienced a rise in the growth of electric car demands. As the leading producer of electric cars, Tesla will be experiencing more demand in the future, which amounts to more change in the future, increasing the need for additional production. The company may need to expand its factories to other regions, which also marks the rise in the value of assets as well as revenue (Huang, 2019). The rising market value of a company also increases its stock price. Increasing more assets increases the market value, which is the current trend of Tesla as it anticipates expansion to other regions in the world. Considering the current price of Tesla shares, which are currently exceeding $400 (Gov Capital, 2020), the company may reach more than $1,000 for each in the near future.
In the last four years, production has increased from 17,400 units from the first quarter of 2016 to 11,200 cars in the last quarter of 2019, as shown in Figure 11. The total units produced each year have increased over the years, with 2019 having the highest production. According to Reinicke (2020), the company announced that the total units produced in 2019 were 367,500 cars, which is slightly higher than the company’s delivery goal. Wayland & Kolodny (2020) state that the company produced 112,000 units, exceeding the 106,000 units estimated by WallStreet and meeting Elon Musk’s annual production goal. As illustrated in Figure 11, 2019 marked the highest year of production and met its goal of 360,000 – 400,000 units, which was a 50% increase from the previous year (Wayland & Kolodny, 2020). The company aims to increase its production in the coming years to meet its growing market worldwide.
Figure 11 Source: Statista
Whereas the production involved all the three models from the company, Model 3 had the highest units produced. According to Wayland & Kolodny (2020), the company’s goal was to create 9,300 Model X units, 9,800 Model S, and 87,900 Model 3 cars but exceeded the amount and also delivered more than produced cars. The increasing demand for Model 3 cars is set to increase its production in the company alongside the new Model Y. In the last quarter of 2019, the company produced 92,550 units of this model alone (Wayland & Kolodny, 2020). Compared to other sedans in the industry, Tesla’s Model 3 cars were among those with the highest market share among small and middle-sized vehicles, as shown in Figure 12. Most importantly, only Model 3 showed consistent expansion of its market share rising from less than 5% to close to 35% between November 2017 and May 2018. The market share of this car has increased in 2019 and is considered to be the best selling product so far from Tesla. Attaining this market share indicates the potential for growth in the future, which will significantly increase the market cap of the company. This trend will substantially increase the value of the shares.
Figure 12 Source: StarkInsider.com
The competitors with the highest shares were BMW (NASDAQ: BMYY) and Mercedes (NASDAQ: DDAIF), each of which lost a considerable percentage of the market share. Each of the two companies producing the 3 Series and C Class respectively experienced a downward trend for the seven months. The other competing companies, Audi and Lexus, held an almost stable market share without losing much to its competitors (Figure 12). The trends of all the four competitors compared to that of Tesla shows that the company has a high potential of having the highest market share. Production of Model 3 is expected to increase in 2020, whereby more sales are anticipated both locally and globally. Although the market share shows the USA car market, it can be considered a representation of the global market. With Model 3 as the current leading electric car, the acceptance of Model Y may spur more growth for the company and thus increase the value of the shares.
The leadership structure of the company is uniquely planned, which has been attributed to the success of the company (Cornell & Damodaran, 2014). The current CEO, Elon Musk, who is also one of the founders of the company, has been in this position since 2008, allowing him to carry most of the initial goals and objectives to maturity. Additionally, the leadership of the company comprises other founders, whereby each holds a specific position and department, allowing the smooth functionality of the company. For a long time, Elon Musk has been considered the face of Tesla, and most investors are convinced of the company’s continuity based on the visions of this CEO. In his recent scandal with the company, most investors rallied behind this visionary leader, considering his objectivity as crucial for the growth of Tesla (Feuer, 2019). According to Wagner (2020), Musk was the most inspiring figure in the company and remains influential in the company. The leadership strategy allows independent decision making and incorporation of innovation easier from the perspectives of the different leaders. Additionally, having the other founders hold leadership positions also enables them to share common interests and goals, as well as ideas that may see the growth of the company to better places than it is now. This consolidated leadership also allows the shared visions to be developed in a way that expands the company and moves it to different levels.
The Future of Electric Cars in the Global Market
According to Cornell & Damodaran (2014), the automotive industry is well-defined, mature, and large, to which Tesla is part. Competitors in this industry are mature automotive companies whose products are well established among its customers and competitors. Operating in such an industry requires a new entrant to provide high quality products for it to create or acquire its customers and market share. Whereas quality is a primary factor, price, on the other hand, is highly influential and a key determinant of the number of sales for every company. In the automotive sector in the USA, Tesla’s cars are among the most expensive, making them only affordable for high-income earners. However, the company hopes to produce cheaper cars in the future, enabling it to serve more people (Cornell & Damodaran, 2014). This may be useful for the company to fit as a major player in the car industry since it still considered as one of the young companies in this sector.
On the other hand, the changing technology and preferences of individuals are expected to transform many sectors, including the automobile sector. Whereas vehicles were initially considered a luxury, especially when highly-priced, other arising issues may eventually eliminate such perceptions. Climate change is one of the contemporary global concerns, which is being addressed from all possible perspectives (Thomas & Maine, 2019), and also the niche served by electric cars, developing products and services which are environmentally friendly and equally contribute to the conservation of the environment. The automotive industry has embraced this global objective intending to help the transition towards more sustainability. However, as Cornell & Damodaran (2014) opine, technology and innovation are critical factors for the future of this sector, which puts Tesla ahead of other competing companies. The company is among the leading high tech industries that are also expected to transform the automotive industry.
As a young company, in a sector that is still in the introductory stage, Tesla has been under criticism, especially financially, due to the increasing debt and operating at a loss for a long time. According to Hecht (2019), Tesla has not reported any profits in any fiscal year but has had several profitable quarters. Despite operating at a loss and not paying dividends to its investors, the company continues to thrive by increasing its production and sales volume and expanding globally. This indicates that unlike other sectors where companies are forced to close down after they fail to make profits, the electric car manufacturing sector is different and has great potential for growth. For Tesla, operating for more than ten years without making any profits is expected to have created doubts for investors and owners (Huang 2019). However, investors still express their hope in the company based on the sector that the company operates.
One of the strategies adopted by emerging industries and companies is the use of intensive technology to transform their sectors. Innovation is an essential strategy that these companies have taken to differentiate their products and improve on quality to achieve customer satisfaction. Liu & Meng (2017) state that the automotive sector is a capital intensive sector that adopts global technology. The industry requires the use of intensive technology to produce its items. Electric car manufacturing uses high-end technology and is expected to use the latest technology in the future. The current technological trend is highly beneficial to the sector, which will be an addition to the ongoing innovation in the industry. Tesla is way ahead of other automotive companies in terms of technological innovation, which is also an added advantage that makes the company competent (Liu & Meng, 2017). The company will, therefore, not have difficulties in transitioning to new technology, as it is part of the company. This implies that Tesla will spend little while incorporating new technology and thus be able to allocate such funds to other productive sectors that can lead to the growth of the company.
The invention of electric cars was initially meant to provide alternatives for gasoline-powered vehicles. However, in the contemporary world, electric cars are more associated with environmental friendliness than as alternatives for gasoline-powered vehicles . The development of batteries to power vehicles reduces pollutants in the environment compared to fuel cars. Although fuel is currently cheaper than the lithium-ion batteries, the environmental impact of fuel is adverse compared to electric vehicles. Therefore, the acceptability of electric cars is expected to increase as more people gain awareness regarding environmental conservation (Thomas & Maine, 2019). The need to mitigate global warming and contamination of the environment may see the growth of the industry in the future. Products developed in the future are expected to be environmentally sensitive, whereby Tesla is ahead of other companies. A prediction made by Riley (2019) regarding the use of electric cars compared to gasoline cars shows that electric vehicles will most likely overtake traditional vehicles, as shown in Figure 13 below. Riley (2019) asserts that by 2040, gasoline cars likely to be sold during this year will be 42.2 million units compared to the 48.8 million units of electric vehicles globally. Hybrid cars will be even lower, which shows that the sector is growing and will be leading the automotive industry in the future.
Figure 13 Source: Riley (2019)
The different trends in the electric car manufacturing sector will positively impact or contribute to the growth of Tesla. The industry is expected to grow as more people appreciate environmental friendly products and consumption of sustainable energy considering the contemporary climatic concerns. Just as other environmentally conscious products have gained acceptance in society, the same is expected for electric cars. Additionally, as stated by Sierzchula et al. (2012), the company is still in the introductory stage and is expected to grow. The CEO of Tesla contends with this approach, noting that the production of its current models is still the beginning of the company (Riley, 2019). The electric vehicle industry is growing and increasing in value, which will raise not only the market value of each company but also the market cap of these companies. This will, as a result, boost stock prices. Acceptance of the sector will reduce the risks associated with the volatility of share prices and uncertainties related to the company as competition increases and the market broadens.
Aside from the acceptance of the new technology used by electric vehicle manufacturing companies, it is evident that the sector is growing at a faster rate than anticipated in the past. In an assessment of Tesla, BYD, and Toyota, Liu & Meng (2017) claim that all the three companies are expected to increase in technological innovation in the future as they venture more into vehicle manufacturing. For BYD, the company depends on product innovation and technology, which has contributed to its positioning among the leading tech companies in the manufacture of electric vehicles. For Tesla, the company is not only reliant on its product, as its name has become the company’s brand, which not only sells its products but also has been an essential determinant of the company’s stock trading (Liu & Meng, 2017). The competition, especially in product perfection among the companies, is a critical contributor to growth and development in the sector, which is evident from the current electric vehicles in the global market.
Tesla’s Marketing Strategy and Positioning
According to Liu & Meng (2017), the market positioning of a company is vital and should be strategically developed in line with the company’s programs and activities. The marketing strategy should be involved in each step of each program to ensure that the company does not deviate from the planned activities listed in the marketing strategy. In the electric vehicle sector, customer habits, charging time, and electric car infrastructure production are critical aspects when venturing into this market (Liu & Meng, 2017). This is because, while stile at the introductory stage, the industry has not met consumer needs, such as traveling with family, and therefore needs to be convincing enough for individuals with families to purchase even when the vehicle does not fulfill their desire. Technology has been the primary approach used to appease and attract consumers by developing the latest technological advancements in the car, which makes it attractive beyond other individual needs.
The electric vehicle sector is dominated by private cars manufacturing, which, as mentioned above, requires appropriate strategizing and market positioning. Liu & Meng (2017) assert that the companies compete against each other to provide satisfactory products to their customers, who are expected to overlook other needs and preferences in vehicles and choose these brands. For Tesla, the company has positioned itself as a luxury brand by providing luxurious sportive cars to its customers (Liu & Meng, 2017). The company has high quality and well-designed cars whose interiors are luxurious, making it a luxurious brand. The company targets the elite in the society who, beyond desiring the top quality, also want to try new vehicles (Liu & Meng, 2017). Additionally, the company has concentrated more on being the leader in quality that it has achieved with each model that it produces. Currently, Tesla’s Model 3 is the leading brand in the electric car sector, despite the product targeting the rich only. The company has succeeded in positioning itself as a luxury brand in the market. Each of its products has been a market leader, whereby this trend could lead to increased stock value in the future.
On the other hand, the electric vehicle market is changing, and as mentioned above, its acceptability as an environmental friendly oriented industry will lead to the demand for more products in the future. According to Liu & Meng (2017), the industry is currently divided between concentrating on private transport and constructing public transport vehicles. Tesla has focused on private cars. However, one of its key competitors, Chinese based BYD, has ventured into the development of public transport vehicles and currently has several models (Liu & Meng, 2017). In the future, Tesla may venture into this sector, which will be useful in ensuring that the company expands its market and positions itself to cover a broader market base. The company is known to be a leader in innovation led by a risk-taking CEO, which is an appropriate strategy to increase its operations. If the company chooses to shift its market position from the private sector to the public sector, its growth could be uncertain. However, by venturing into both areas, the company will be assured of growth in the future, which could see the stock process increase from their current position, which is already higher than many of its competitors.
In recent years the company has diversified its business strategy and positioned itself as not only an electric car manufacturer, but also a dealer in sustainable energy equipment. The diversification of business by the company is a strategic method of attracting more customers, as it sells batteries, solar roof tiles, and solar panels, among other things (Gebert, 2014). From one perspective, the company has positioned itself as a leader in energy conservation and sustainability, a position that none of its competitors has been able to achieve. Additionally, the company has positioned itself as a battery producer and solar items producer and dealer, which serves different markets. Each of the sectors targets the contemporary global concerns that are likely to attract more customers to the company. This market positioning strategy will increase the market share and, thus, the revenues. The sector is also more profitable than selling electric cars, which may help the company deal with its financial constraints.
An important and effective strategy for Tesla is its marketing strategy. The company is famous for lacking an advertising budget. The company does not spend on advertising but instead uses other means to reach its customers. Currently, most companies are reliant on internet advertising by using disruptive adverts that have become some of the annoying things on the internet today and more likely to be ignored by an individual. Tesla’s marketing strategy is almost reliant on its social media followership, whereby the company updates all information about its CEO and other employees on social media. Recently the CEO Elon Musk was involved in a scandal with the company after declaring his intention to privatize a percentage of the company, which was not discussed by the board (Feuer, 2019). Later, a settlement was agreed upon with the SEC. Although this move almost threatened the position of the CEO, it shows the extent of influence that this Tesla leader has on social media. The company also relies on its social media accounts as critical marketing tools.
Tesla’s marketing strategy of using social media is highly successful compared to other automotive companies, as shown in Figure 14 below. Compared to other car brands, Tesla has the highest following on twitter with almost six million followers. This is quite a high number compared to Toyota and Chevrolet that have less than two million followers. In the contemporary world, social media marketing is one of the successful methods of product advertising given the popularity of the internet today. Governments run Twitter and other social media accounts, indicating the importance accorded to such accounts. Therefore, the leadership of Tesla in the number of followership is an added advantage, which also portrays the decision of the company to remain a high tech brand by abandoning the traditional methods of reaching their customers. Compared to other brands with electric cars like Mercedes, Tesla is still ahead in its unique marketing method. The company’s decision to remain unique in all aspects shows excellent potential for the company to increase its operations in the future (Kancherla & Daim, 2018). This strategy ensures growth in the future and, therefore, the anticipated increase in the prices of shares.
Figure 14 Source: GrowthHackers.com
Ensuring that the company cuts down on its advertising costs is also useful for the development of the company, especially in its ability to generate profits. The marketing strategy serves both as a cost-cutting means and a strategic and unique way to reach the customers and position the company among the leading companies in technology. This is useful in developing an essential niche for itself that will help Tesla serve its customers who will remain unique to the company. According to Thomas & Maine (2019), market positioning is useful in ensuring that the company acquires a permanent and growing market share as it matures that will protect it from losing this to share to new entrants.
Tesla’s Business Model
Tesla’s business model is one of the significant contributing factors that have seen the company develop to the current position. Tesla began as an electric car manufacturer but has since expanded and ventured into a separate business. The primary purpose of the company is to quicken the use of sustainable transport by manufacturing electric cars that serve this purpose. Achieving this goal required a unique business approach, given the costs involved and the technological innovation required. Additionally, the company intended to produce cars affordable to the mass public for it to achieve its goal. However, the company began with a different approach by creating a compelling car, whose price wasn’t affordable to just anyone, and eventually became a luxurious brand. Despite this change, the company has remained successful, especially in growth.
However, Tesla’s business model remains unique. According to Riley (2019), the company has deviated from the traditional operating ways raging from production, distribution, and marketing, a business approach that has proven successful to the company in different ways. In an analysis of the production model, Sierzchula et al. (2012) suggest that uniqueness in production is vital in a competitive environment, whereby the models developed need to be original in every way. Tesla products can be viewed as innovative and unique in design and quality, which has been an advantage for the company helping it to remain on the lead, especially in the US market (Reinicke, 2020). Additionally, the company has other unique practices that are different from other automotive manufacturers around the globe.
Tesla utilizes direct sales, unlike its competitors, who often sell through franchising. For a person to purchase Tesla products, they deal directly with the company’s employees, who will inform the customer regarding the product and answer all possible questions. This is an advantage, as the staff is well informed regarding the company’s products compared to salespeople in franchised stations who are more interested in making sales than meeting the customer needs. Additionally, the company owns its sales line, ensuring that there are no middlemen involved (Bilbeisi & Kesse, 2017). For the company to reach its global consumers, it operates its website from where purchases and sales are made. An individual can purchase Tesla goods and also receive any further information regarding the product as required. According to Bilbeisi & Kesse (2017), owning the supply chain from when the products are manufactured to when they reach their consumers helps to cut on expenses, including the cost of goods sold. This strategy assists the company in monitoring the products and thereby getting instant feedback from the customers.
A valuable service offered by Tesla is the free charging stations provided to its customers. Although Bhavani (2018) claims that this is one of the extra expenses that has made Tesla operate at losses, the service encourages consumers to purchase electric cars since they can charge them for free when on a journey. The company also owns its service centers and showrooms from where the customers get most services including charging their vehicles. Additionally, by partnering with other companies such as Panasonic, the company has been able to cut on costs, especially on battery manufacturing. Furthermore the company has expanded by opening up several Giga factories from where it manufactures most of the input products it requires in the construction of its products (Bilbeisi & Kesse, 2017). Whereas most automotive industries partner with different companies before the completion of a car, Tesla has tried to produce most of its products, an essential factor in cost-cutting.
On the other hand, the company has diversified to a different sector, especially after the merger with Solar City. Aside from venturing into a different industry, the move is useful for the company brand as a leader in environmental conservation and the use of sustainable energy (Bilbeisi & Kesse, 2017). Currently, Tesla is a tech company, hardware supplier, car manufacturer, and a solar items producer. This business model is unique compared to other players in the market, which has made Tesla stand out in serving the niche. Maintaining this business strategy that has helped the company grow to its current position will lead the company to more success, especially in its ability to reach and serve more customers. Through such expansions, the company increases its market cap, which will impact the stock prices positively.
The different strategies adopted by a company influences the growth of the company. The strategies adopted by Tesla, including its business model, marketing strategies, leadership roles, and innovative strategies, will lead the company towards the achievement of $1,000+ per share in the next few years. The current business model and production strategies have allowed the company to develop to its present position, both in revenue amount and in the price of shares. However, for the company to achieve its sales strategy, more transformation of operation and production will be necessary. In the past decade, the company has earned a more than 1,000% growth in its market value, with the current stock market prices still increasing. This indicates that the company will continue to grow in the future.
On the other hand, the leadership of the company and business model have increasingly contributed to the growth of the company. Tesla has seen the culmination of the visions of its CEO, who remains the face of the company in the eyes of investors and customers. The company recently declared its intention to maintain Elon Musk as its CEO, despite his involvement in fraud claims. This strategy may attract more investors who will increase the demand for the company’s shares and, thus, the increase of the stock prices. Another approach is the company’s business model, as well as its marketing strategy. Tesla defied traditional marketing strategies and instead adopted online methods, as well as word of mouth marketing. This increases the efficiency of marketing methods. These strategies will contribute to the growth of the company and, thus, increasing stock prices. Just as Ron Baron envisioned the stock process of the company, it is expected that the company will experience more growth, as is the current case, allowing the share prices to reach more than $1,000.
Limitations of Research
The research relied on current sources of information that involved articles in the news, which include personal opinions of the authors, some of which could be biased. Additionally, the company does not provide much information regarding its internal processes and fundamentals, which limits the possibility of an accurate comparison of figures or trends involving the company. The research involved tracking stock prices, which change every minute and may, therefore, have used different values trading the same day. Another limitation is the different figures used by different authors while discussing the same companies, which may have led to varying conclusions regarding the same issue. Future research can be done regarding why Tesla may not be able to provide cheaper electric vehicles as anticipated.
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For decades, the US dollar has served as the world’s primary reserve currency. However, the dollar was not always in the premier spot amongst the world’s currencies, surpassing the pound sterling in the twentieth century. With today’s changing economic environment and shifting global sentiment, other currencies are also gaining influence in the reserve currency arena. With that in mind, what countries are making moves, and what other options might there be?
The world’s second largest global economy, China, has been rapidly gaining in economic power since the 1980s, growing at an average annual rate of almost ten percent. The country’s currency, the yuan, rose from the thirteenth-most-used currency in 2012 to the fifth most prolific currency in just three years, surpassing the Swiss franc, Canadian loonie, and Australian dollar. Due to the yuan’s increased use in international trade and subsequent increased influence, in 2016 the International Monetary Fund awarded the yuan reserve currency status.
In order to service the yuan’s increased usage and encourage the use of the yuan in trade, China has set up trading hubs for the renminbi around the world. (Note: While there is a subtle technical difference between the renminbi and the yuan, the terms are used interchangeably to refer to China’s national currency.) The Renminbi Trading Hub for the Americas opened up for business in Toronto on March 23rd, 2015. The London trading hub, meanwhile, is the biggest renminbi exchange outside of China, processing over $73 billion in transactions daily – more than thirty-six percent of the renminbi’s global volume. While other hubs post much lower transaction volumes, trading hubs for China’s currency also operate in other areas across the globe, like Singapore and France.
In the USA, former New York mayor Michael Bloomberg along with US Treasury Secretaries Hank Paulson and Tim Geithner have created an official working group assisting in stateside renminbi trading and clearing, while as of 2018, China has designated two banks with clearing status – J.P. Morgan Chase and the Bank of China in New York. In addition to trade, the level of international investment being conducted in Chinese yuan is increasing the currency’s influence as well. Limitations on investment, such as the previous $38 billion cap on the Renminbi Qualified Foreign Institutional Investor program, have been lifted. Meanwhile, in London, “[…]policymakers are moving towards a broader view and see London as a place for introducing Chinese capital markets to foreign investors.”
In addition to other moves intended to increase use of the yuan – such as launching oil futures denominated in yuan, and increasing the number of bilateral currency-swap agreements through its Belt and Road Initiative – several major central banks around the world have also started to increase the amount of yuan they hold in reserves.
Special Drawing Rights
“Special drawing rights,” or SDR, could be described simply as the “currency” of the International Monetary Fund. It is not, however, technically a currency, but rather represents a unit of value based on a basket of strong national currencies – somewhat similar to how an index fund works. Currently, the International Monetary Fund’s SDF is backed by the US dollar, the Euro, the Chinese yuan, the Japanese yen, and the pound sterling. It is also weighted in that order. Every five years, the IMF evaluates the global economy and restructures the types of currencies, or weighting of each, according to its importance in international trade and finance.
The SDR, because of its diversification, is viewed by some to be the ideal candidate to serve as the primary global reserve currency. Neither politically nor economically swayed by a single country, calls for use of the special drawing rights for settlements have increased, particularly since the global financial crisis.
In 2009, the Governor of the People’s Bank of China petitioned the Bank of International Settlements for broader use of the SDR. Institutions, such as the Peterson Institute for International Economics, have suggested that diversifying responsibility for the global financial system may help reduce imbalances from countries selling debt (or bonds) to create supply. The fact that the SDR is less volatile compared to any single currency is also what makes it a preferred unit of account for large organizations working in developing nations, such as the African Development Bank, Bank of International Settlements, and Arab Monetary Fund.
In a decade that has seen the phrases “currency war,” “currency devaluation,” and “currency manipulator” thrown around left and right, the special drawing rights, concurrently, offer a solution freer from finger pointing. The IMF itself suggests that a reformed system such as the use of SDRs could help minimize risks in the current system, though it simultaneously acknowledges that the successful use of the SDR as a system would require increased global cooperation that may or may not materialize.
Vying for position as a reserve currency, and capturing the benefits that go with it, has been an exercise for countries for centuries. While the dollar is unlikely to be usurped anytime soon, the constantly shifting landscape of global economics – including the recent rise of China and the yuan, as well as new proposed solutions such as special drawing rights or even digital currency – is only ever certain, whether slowly or rapidly, to change.
Definitions of terms used in this article:
Reserve currency: “One of the national currencies (dollar, euro, yen, etc.) or IMF’s special drawing rights (SDR) used by a country to hold its foreign currency reserves and gold for settling international trade transactions and other obligations.” (BusinessDictionary)
Yuan: “(CNY or ¥) The currency unit of the Republic of China.” (Investor Words)
Special drawing rights: “International financing instrument created in 1970 by the International Monetary Fund (IMF) to coincide with the disfavor of the US dollar as the principal currency of the world trade.” (BusinessDictionary)
International Monetary Fund: “UN specialized agency established in 1944 under Bretton Woods system to help prevent unstable exchange rates and competitive devaluations of pre-Second World War Western economies.” (BusinessDictionary)
The trade deficit and resulting trade war with China have been the talk of the financial town for the last couple of years, as well as extensively covered in mainstream news. Most have heard about the fact that we have a deficit, meaning we import more than we export. However, there are some surprising facts about the trade deficit you may not know.
Our trade deficit was higher in the past.
While there is a lot of chatter about how big the deficit is, the current account numbers are actually lower than they’ve been. In 2006, the US trade deficit was at its highest, standing at over $760 billion, and has in fact spent a number of years higher than the latest reading in 2018 of $621 billion. The deficit began expanding in the 1980s, increasing at a rapid rate in the early 2000s and shrinking again after the financial crisis. Today’s deficit stands at around the same percentage of gross domestic product as it did in the late 1990s.
We actually have a surplus in services.
The account balance takes into consideration two parts – goods and services. While the total deficit of 2018 stood at $621 billion, the deficit in goods alone was actually much higher, at $891 billion. What created the offset? The United States actually has a surplus in the amount of services exported. This means that the value being created in the US is largely service-based, such as internet solutions and “digital trade,” or the servicing and moving of data. Even as long as half a decade ago (and tech has advanced rapidly since then), the United States exported $385.1 billion in digital services, according to data from the U.S. Department of Commerce’s Economics and Statistics Administration.
A deficit doesn’t have to mean a bad economy.
Economists debate whether a deficit necessarily means a poorly functioning economy. Some even argue that running a deficit may be a sign of an expanding one, with consumers rife with cash to spend on imports, and boosting interest rates, making foreign investment in the country more attractive. At the same time, many countries historically thought to have less stable economies, such as those across Southern Asia or Northern Africa, have consistently run surpluses. The concern that running a deficit hurts jobs may have merit, as it could be an indication that more jobs are moving overseas. However, economists suggest that automation and other factors still play a larger role in job turnover than outsourcing.
A lot of our imports are American products.
The most surprising fact about the trade deficit might be that many of the goods we import are actually products made by American companies. This is because anything that is shipped to the United States from outside is technically classified as an “import.” Take Apple, for example. Apple is an American company, yet Apple’s products are famously known for being manufactured overseas. Meanwhile, Apple in 2017 imported over 61 million iPhones to the USA, adding about $15.7 billion in what were considered imports to the trade deficit. Nike, likewise, makes 94% of their shoes overseas. Almost half of all Nike shoes are sold in the US, making their domestic revenue from the items they “imported” in 2018 almost $14 billion. Other American companies, such as Cisco, Intel and namely Wal-Mart – the largest retailer in the world by revenue and the number one ocean container importer by volume – are among the top five companies doing the most manufacturing for domestic products overseas.
There’s always a lot more to economics than meets the eye. Even economists don’t always agree on what the numbers ultimately mean, and there can be a million different elements that affect any given statistic. In regards to the trade deficit, along with all the buzz it generates, these lesser-known points may be a few you haven’t yet heard.
Reserve currencies – the creme de la creme, the best of the best, the apple of the monetary eye. What many monies wish to be and what to so few are afforded the crown. Aspirations aside, it’s no laughing matter to countries vying for position as the next great issuer of a global reserve currency. So why all the fuss?
What is a reserve currency?
Reserve currencies are a special class of money. While they may also be referred to as anchor, safe-haven, or hard currencies, reserve currencies are what central banks around the world hold the majority of their extra cash, or reserves, in. Basically the government version of a savings account, these reserves are made up of the currency that is perceived to be the most stable and reliable, or in other words, the safest. Money from countries with the largest, most established economies and the greatest amount of economic depth – such as ability to extend credit, capability to pay back debt, and general wherewithal to back the contract of payment their cash represents – are afforded reserve currency status. Meanwhile, in addition to being the primary ingredient in the government version of a rainy-day fund, reserve currencies are also used to facilitate smoother international trade (since payments are settled in the same currency versus having to convert it) and make more seamless global investments. Countries with reserve currencies receive certain financial benefits in return. Since transactions are settled in their home currency, reserve currency issuers are firstly relieved of exchange risk, or the possibility that the money they just used to transact might lose value after the fact. Additionally, because demand for their currency (and thus their bonds) is high, reserve currency countries enjoy low interest rates. This is good not only for the government itself, but also for citizens who can enjoy affordable rates on home or business loans, further supporting and strengthening the domestic economy.
A brief reserve currency background
In the past, different currencies have held the coveted reserve status. For almost two hundred years, Britain’s pound sterling was the premier reserve currency around the world. After World War I, however, the US dollar usurped the pound as the globe’s preferred legal tender, and rose to prominence after the subsequent Bretton-Woods Agreement in which delegates from forty-four nations agreed to name it the world’s official reserve currency in 1944. In that time, the US dollar was backed by gold. However, as entrenchments around the world such as the Vietnam War and projects at home like the Great Society programs became increasingly expensive, the US government started to print currency on top of treasury bonds, or essentially dollars backed by dollars that were backed by gold. With the influx of additional paper, faith in the dollar’s value began to wane and countries who held dollars in reserve began to redeem their funds. This is what prompted Richard Nixon, in 1971, to take the US dollar off of the gold standard and allow for the floating rates we have today. Floating currency rates derive their value from one another and are in a constant state of flux rather than being pegged to anything fixed. Rather than on 1.5 grams of gold, the dollar thus became backed instead by the “full faith and credit” of the US government.
The problem with reserve currencies is that they are only as good as the countries that back them. If and when, for any reason, other nations start to lose faith in a country that backs a reserve currency, so too will the faith in that currency wane as a stable reserve asset. From 2008 to 2012, the value of the Euro declined as it experienced a sovereign debt crisis in which many of its banking systems from Iceland to Greece failed. In 2002, the dollar began to lose value due to the ballooning US debt, and has begun to do so again since around 2009. Financial instability, however, is not the only reason some countries today are unsatisfied with the current reserve system. An additional side benefit of being a world reserve currency issuer is that holding the keys to the global financial system simultaneously comes with a lot of political clout. You could, for example, impose sanctions on a country that were acting in a way you disapproved of, disallowing them from transacting in your currency. This would then essentially lock them out of the global financial system – whether anyone else agreed with that move or not. Unilateral moves like this have traditionally not gone over well. When the United States withdrew from the Iran deal and reimposed sanctions against the country in 2019, France, Germany, and Britain created the “INSTEX,” or Instrument for Supporting Trade Exchanges, in order to facilitate non-USD transactions and circumvent independent US action against Tehran. At the same time, central banks around the globe including the European Central Bank have been decreasing their dollar holdings and replacing them with other currencies. China’s yuan, which gained reserve currency status from the International Monetary Fund in 2016, increased in central bank reserves by 1.8% in the third quarter of 2018. As sentiment shifts, the large economies of the world are angling for more economic influence and many are calling for a rebalancing of monetary power.
Reserve status for a currency is an important distinction. Likewise, being the issuer of a reserve currency offers distinct benefits and is an advantageous position for any nation. As several countries have made moves to strengthen their currency’s status, and others have suggested an alternative benchmark that relies upon a basket of currencies rather than any single one, the winds of reserve currency change may be blowing once again.