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Why it’s Time to Start Buying TESLA Long

PUBLISHED Jul 25, 2022, 8:55:49 AM        SHARE

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Why it’s Time to Start Buying TESLA Long

Is it possible to sell Tesla, the most shorted stock globally, as a potential long buy? On 21 July 2022, Tesla’s stock surged by 10%, attributed to its strong earnings in its Q2 2022 results. The surge was an unpleasant surprise for short traders, who made an estimated mark-to-market loss of over $1 billion.

It is understandable why short buys stand so high, especially in light of Tesla’s supply-chain woes this year that have led to skyrocketing prices. Hiked material costs and an inconsistent supply chain are causing production disruptions. Additionally, long-term concerns about effects of Elon’s Twitter purchase on Tesla affect investor sentiment.

TESLA growth and impressive profitability

I view Tesla as a monopoly in the auto industry. Tesla is the leading automobile brand in the industry in terms of profitability. This is thanks to its high sales volume, at considerably high prices and on a single platform. The management projects annual growth of 50% in production in the coming years.

If the outlook is anything to go by, earnings could reach an estimated $15 billion by the end of 2022 if the profit margin maintains the current 17.7%. The valuation is reasonable, and the expected growth makes Tesla a worthwhile investment. Tesla’s business model focuses on direct sales. Tesla, unlike legacy automakers, retains a high-profit margin by cutting out the middleman.

What Makes Tesla a Leading Automaker?

Fuel prices have hit record highs globally due to an imbalance in supply and demand. The short supply and high prices are owed to the war in Ukraine. Consumers are opting to switch to electric vehicles, as the upward trend in fuel prices is set to continue in the future.

Tesla exclusively deals in the production of electric vehicles, unlike legacy automakers. This gives Tesla a first-mover advantage. The company’s four production models rank among Consumer Reports' top 10 most satisfying cars.

Like most other raw materials, nickel and cobalt prices are soaring daily, making it more expensive to manufacture electric cars. Increased production costs translate to the increased sale price, making some consumers second-guess a decision to purchase an EV. However, the standard models offer excellent performance without necessarily having to dig too deep in your pocket.

Tesla has ensured their potential consumers know this by going all out on their marketing campaigns. Tesla is the leader in EVs market share, and all indications point that it will remain so in the coming years. Therefore, if you are looking for a long-term stock (5 years) with a high-profit margin, Tesla is a good buy today. The bear market is inevitable, and stock prices may drop further in the short term.

A smart strategy is slowly creating a solid portfolio by buying the dips. You don’t have to wait for the lowest price possible as the markets are volatile, and future events such as a stock bubble, economic climate, and changed investor sentiment may cause a rapid stock rise. Furthermore, the expected stock split in August 2022 will likely shoot up the share price by a significant margin.

The Future Looks Bright for TESLA

It is difficult to accurately predict a giant tech stock's future, given the fast-paced changes in innovations. However, electric cars are the future. They are eco-friendly and cheaper in the long run, as the consumer cuts out fuel costs. High oil prices have led to increased inflation and, consequently, raised interest rates by central banks. An electric car is initially an expensive purchase, but it saves you money in the future. Unsurprisingly, share prices of EV manufacturers often surpass the valuation of the S&P 500 index. Despite dealing with inflation and increased production costs like any other business, demand for Tesla’s EVs is rapidly growing. According to CEO Elon Musk, Tesla's challenge is production, not consumer demand. A long-term Tesla investor should consider utilizing the time-arbitrage strategy.

The strategy involves selling short-term investments to buy more profitable long-term hold stocks. The major advantage is that you collect an option's premium if a stock price maintains above the strike price. The current stock market conditions are unfavourable for growth stocks such as Tesla. However, it is a good buy, against all odds, especially for growth investors.

Final Thought

The near-term negative trading of Tesla should be seen as a short-term hiccup and unlikely to affect the stock's long-term prospects. Another concern, especially for risk-averse investors, is that the demand for Tesla products is likely to be affected by a possible global recession or economic slowdown.

We should consider that Tesla has not experienced a falling demand problem in its history. The company has started to ramp up production in both the U.S and China factories. Tesla is likely to dominate Europe and China markets in the future as it expands its reach. As we expect the high demand to continue and the stock market to stabilize, Tesla's stock performance will improve sooner than expected. It is the best time to buy Tesla long, as we anticipate growth.

TSLA, Buy

Tesla Inc
Return: -37.24%

TSLA, Buy

Return: -37.24%


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