Startups provide investors such incredible and sustainable returns. A mix of insight and a look at the numbers will give you an idea when considering a move on the stocks of new technology startups like Tesla.
When Warren Buffet bought the shares of the Insurance Company, GEICO in 1951, he did so with insight. He learned that the company does not use agents for its insurance business and that they were doing things differently from other investors. This smart move earned Warren 50% return per year over the next five years.
The Cost Cutting Edge
The range of new technologies available today makes it such that the businesses have to adjust their patterns to do things differently. Tesla has pulled punches in this regard by developing cars run by batteries that are electrically charged. This move meant a lot to environmental activists who saw the chance to have solar-charged cars becoming a reality.
When Tesla started building its cars, it was using a factory for each brand just like traditional car makers but today, it builds two cars in a factory. Not only are Tesla electric cars environmentally-friendly, they also do away with the troubles of internal combustion engines. The cost per mile of electric cars translates to at least 25 percent savings on fuel engines.
Tesla has on-going effort to cut down on the cost of its batteries and boost their efficiency. The company has been able to do this by introducing production patterns that harp on manufacturing improvements and efficiencies. This ultimately reduces the cost of production and sales price.
Just like the GEICO pattern, Tesla sells its cars directly to end-users, thereby cutting out dealerships and associated costs. The company is doing a number of things differently and this was what caught Warren Buffet’s attention with GEICO stock.
Tesla has a market capitalization that exceeds 25 billion USD and this is an aside to its IPO, which hit the markets in 2010. As investors perused the company’s worth vis-a-vis its potentials, its valuation has continued to soar. While might say there is a bubble in its market cap, the reality is that there is a real market out there for its products.
Earlier forecast for Tesla was that it won’t be profitable till 2020; this has been revised to 2018. The company acquired SolarCity in 2016 and has added the production of Powerpack and Powerwall products to its output highs.
To rightly situate the Tesla story, there is an expanding potential for an inevitable market valuation highs. The company has set car delivery targets at 500,000 per annum over the next two years.
The company’s turnover is expected to surpass the $7 billion mark for 2016 to peak at about 10 billion USD for 2017. This is on the cusp of the mass market ‘Model 3’ hitting the market at the end of 2017 Q2.
The company’s price per share is projected to hit $368 by 2017 Q3 and this is huge. If you were among those who bought the shares at 25 USD, then you are already making a kill.