Should You Buy Shares of Tesla Stock?

One of the hottest companies of recent record is Tesla Motors. The American car maker is named after inventor Nikola Tesla, who is credited with developing the alternating current (AC) electricity system that is still in use today.  The electric car maker has presented a string of handsome (if wildly expensive) cars that have broken speed records and most recently, earned the highest automobile safety rating ever recorded for a passenger vehicle.  Is stock for this exciting company a good financial bet? The final decision rests with each individual investor; however, a consideration of two of Tesla's major achievements can provide general insight into the investment value of its stock.

Factors That Affect Share Prices

In determining whether to buy shares of stock issued by a particular company, a major factor to consider is the earnings level of the company issuing the stock. During the go-go boom period of the 1990s, many dotcom startups generated a great deal of "buzz" and attracted millions in investments from venture capitalists and angel investors. However, few of these companies ever turned a profit or even generated significant earnings.

 As a result, many of these formerly "hot" companies simply disappeared when the dotcom bubble burst.  Tesla has created a similar level of "buzz" among environmentalists and gadget freaks. However, Tesla Motors appears to have staying power that the dotcoms lacked, perhaps because Tesla manufactures an actual, tangible product, whereas many dotcom companies seemed to exist as the result of a half-formed idea of the founders, maintained by continuous infusions of venture capitalist cash.

Tesla Motors registered a modest profit in the first two quarters of 2013; however, this was largely due to tax credits granted to buyers for purchasing electric cars. Such tax credits are not expected to be forthcoming indefinitely. Nonetheless, demand remains strong for Tesla cars among well-heeled, environmentally conscious buyers and gadget freaks who are enamored with the engineering of the car.

Tesla stock rose more than 400 percent during the first two quarters of 2013, but fell $12.05 (£7.43) to $180.95 (£111.55) in October following reports of a fire that consumed a Tesla S during a test drive and a change in rating from "Outperform" to "Neutral" by R.W. Baird analyst Ben Kallo. The fire, which was traced to the car's electric battery, was determined to have been caused by damage sustained by the engine as a result of impact with a metal object rather than by  an engineering fault in the car.

The Safest and Fastest Cars in the World

Accolades earned by a company represent another means to determine whether to buy shares of its stock. One major knock against many electric cars among aficionados is that they are boxy and slow. Tesla cars are neither. In 2011, the Tesla Roadster ranked number 10 in a top-ten list of the fastest cars on the road in the United States, achieving a top speed of 125 mph, according to a report published by CNN/Money. In 2013, the Tesla Model S was named the world's fastest electric vehicle in production by the National Electric Drag Racing Association, traveling a quarter mile in a speedy 12.4 seconds. In August 2013, the Tesla S saloon achieved the highest score ever recorded for a crash test conducted by the National Highway Traffic Safety Administration (NHTSA).

News-Driven Investments

In making decisions about whether to buy shares of certain stocks, many factors come into play. Among the most compelling elements is the coverage received by particular companies in the news media. Whether the story is about the triumphant conclusion of a study drug trial conducted by a pharmaceutical company or the meltdown of nuclear reactors after a mishap, current events provide insight into the conduct and general wellbeing of companies with stock traded on the open market.

In September 2013, American rental car company Hertz began offering the Tesla S among its rental car inventory, with a rental rate of $400 US per day.  Hertz is betting that the Tesla S is just the sort of product that will attract high-end customers.  This sort of acceptance among the everyday consumer market represents the sort of indicator that would seem to favor a positive trend for Tesla Motors going forward. However, it remains to be seen whether the super-expensive cars will ever emerge beyond being a trendy status symbol to become a part of the mainstream, if high-end automobile market.

Sam Jones the author is often asked many times by readers how do I buy shares?. He often advises them to visit the stocks and shares advice pages here http://www.uswitch.com/investments/stocks-and-shares/