How to Invest in Tesla Stock: The Leader in Electric Vehicles
Electric vehicles are at the forefront of the innovative automotive industry and Telsa is the brand leading that charge.
With sleek designs, the efficiency of electric cars, and autopilot software, Tesla vehicles have garnered much attention and popularity across the world -- especially with founder Elon Musk pushing the technology for widespread adoption.
But, there's more to Tesla than just electric cars.
The company's products also include battery energy storage, solar panels/roof tiles, and related services.
If you’re interested in buying shares in Tesla, here’s what you need to know
Tesla (ticker symbol: TSLA) is an American electric vehicle manufacturer based in Palo Alto, California.
The company was founded in 2003 and now produces four different vehicle models, all of which are electric.
The company has slowly expanded its production and has built roughly 1.25 million vehicles by the end of Q3, 2020.
Today, the company is worth roughly $550 billion, making it the most valuable car company in the world.
Research and Analysis
Whenever you’re considering an investment, it’s important that you research the investment before you commit.
Each investor’s approach to research is different.
Many investors use a strategy called fundamental analysis. This involves looking at a business’s stats and fundamentals, such as revenue, expenses, debt, and profits. Fundamental analysts aim to find investment opportunities in companies that are undervalued by the market.
Fundamental analysts often look at competitors to see how the businesses stack up against each other. Some of Tesla’s competitors include:
- Ford (F)
- General Motors (GM)
- Honda (HMC)
- Tata Motors
- Li Auto
Some of these companies are traditional automakers that are entering the electric market while others are startups focusing purely on electric vehicles.
Another research method uses technical analysis. Technical analysts look at stock’s price charts to identify patterns that could predict future price movements.
Keep in mind:
Even if fundamental or technical analysis for a company is positive, there is no guarantee that an investment will succeed.
The company could fail to capitalize on its opportunities, fall foul of bad luck, or be overtaken by a competitor.
Whenever you invest in an individual stock, you’re taking a risk. If the company does well, you’ll profit, but if it fares poorly, you could lose a lot of money.
Every company’s success relies on its ability to produce, maintain, and sell new products and services.
Without successful products, companies have nothing to sell and no way to produce revenue to keep the business running.
With car manufacturers like Tesla, that means developing new cars that drivers want to purchase and producing enough vehicles to meet demand.
One risk facing Tesla is production issues.
Electric vehicles are complex and rely on a lot of technology and machinery. For example, electric cars need incredibly high capacity batteries.
Tesla has faced production issues in the past, producing far fewer cars than it expected to or than customers demanded. Some people have to wait months to be able to buy a vehicle from the company because of production timelines.
If Tesla is unable to increase production capacity to meet demand, it could struggle in the future.
Changing driving habits
People’s driving habits are changing for a variety of reasons.
Some people have started using public transit or ridesharing programs to help reduce their environmental impact.
With self-driving cars becoming a possibility in the near future, some may decide not to buy a car at all.
While Tesla has done some work on developing self-driving cars, if driving habits change significantly and fewer people buy cars, Tesla may find its market for sales shrinking.
Other Ways to Invest in Car Manufacturing and Electric Vehicles
Buying shares in a single company can be exciting. Watching the company’s success and following news stories about it can be fun.
However, it’s risky to put all your eggs in one basket. If the company fails, you have no other investments to pick up the slack. Building a diversified portfolio is an important part of investing success.
A popular method of building a diverse portfolio easily is to buy shares in a mutual fund or ETF. These funds hold shares in hundreds or thousands of different companies. You can get exposure to all of those businesses by buying shares in a single fund.
Some funds hold a wide variety of stocks while others focus on specific industries, such as the automotive industry or the electric car industry.
That means that you can focus on a specific industry if you want to.
Most mutual funds and ETFs will publish a list of their holdings.
If you want to make sure that some of your investment goes toward a specific stock, such as Tesla, you can read the fund’s disclosures to make sure that it holds the company you’re interested in.
How to Buy Tesla Shares
If you’ve decided that buying shares in Tesla is the right strategy for you, the first thing that you’ll want to do is open a brokerage account.
Open a brokerage account
Brokerage companies help people invest in stocks, bonds, ETFs, and other securities through a brokerage account.
There are many brokerage companies out there, each with its pros and cons.
Some of these companies, like Fidelity and Vanguard, offer brokerage accounts and manage their own line of mutual funds and ETFs. If you want to invest in a fund offered by a company that also provides brokerage accounts, that might impact the company you choose to work with.
That typically means filling out an application, providing some identifying information, and linking a bank account that you can use to fund your brokerage account.
Place a buy order
Once you’ve opened your brokerage account, it’s time to buy shares. You can do this by submitting a buy order.
There are two different types of buy orders you can use.
The more common one is the market buy order. With this type of order, you tell your broker how many shares to buy. The broker will buy that number of shares at the cheapest price available.
With a buy-limit order, you specify the number of shares to buy and the maximum price you’re willing to pay. Your broker will buy that number of shares at the cheapest available price, so long as they’re below the maximum you specify.
Market orders are simpler to place but can be unpredictable. You’ll buy shares at the cheapest available price, even if that price is far higher than you expect to pay. This can often happen if you’re buying shares in companies that are not frequently traded.
Limit orders are generally safer because you can guarantee the maximum price that you’ll pay.
The drawback of limit orders is that they run the risk of not going through at all. If the share’s price jump above your limit and don’t come back down, you’ll never buy the shares.
Consult an Advisor
All investing is subject to risk.
Even buying shares in diversified mutual funds and ETFs is risky, but buying shares in a single business, like Tesla, is even riskier.
It can be exciting, but you should try to keep investments in individual businesses to a small portion of your portfolio, leaving the majority of your money in diversified mutual funds.
Consulting with an advisor to help you make good investing decisions is a good way to make sure you don’t risk too much of your portfolio on high-risk stocks.
As with all investing, you are putting your money at risk, so only invest money you can afford to lose.