Tesla, a pioneer in manufacturing electric-only vehicles, has recently seen their stock go for a wild ride. Tesla's stock was trading in the mid-$30 range per share in January 2013 before shooting up to a high of around $280 per share in September 2014. Since then, the stock has fallen to around $190 in the beginning of 2015.
Will the company's stock begin rising again or will it continue its recent slide? The future is uncertain for Tesla and depends on many key factors that should play out over the next few years.
Tesla's Model S is currently priced starting just shy of $70,000, which puts these cars in the luxury category. While luxury cars do sell, they do so in much smaller numbers than cars that the less affluent can afford to purchase. Tesla will need to come out with a car that is much more affordable to the average American consumer in order to increase their market share in the future. If they can do this, it could be positive for their stock.
Many Tesla owners probably considered the high price of gasoline when they were making their purchase. However, gas has dropped back to the two dollars per gallon range at the start of 2015. Lower gas prices mean Tesla owners will not save as much money on fuel as they would have just a year ago and could influence some buyers enough to decide against buying a Tesla car.
Of course, if gas prices return to their previous three to four dollar per gallon prices, more people may consider buying Tesla vehicles. No one can predict future gas prices, but they definitely have an effect on Tesla's ability to forecast car sales.
Tesla will need to continue increasing the volume of cars they sell in order to gain economies of scale to lower their prices. The more cars Tesla produces, the less it will cost per vehicle for the fixed costs involved in manufacturing each car. If Tesla can continue growing their sales volumes and market share, it would help their bottom line, assuming they can lower the overall cost per vehicle in the process.
Economies of scale will help with fixed costs, but Tesla will need to find ways to reduce their variable costs as well, in order to reach a price point most consumers can afford, while still making profit on each sale. Tesla is working to lower the costs on their batteries significantly through building the Gigafactory, a massive battery factory, in partnership with Panasonic. This should help to lower costs and increase profit margins for Tesla.
Tesla's cars are currently cutting-edge technology, but in a few years, it may seem like just another car. Part of Tesla's success to this point has been due to the cool factor of owning a Tesla. As Tesla continues to grow, they will have to continue innovating to make sure they keep the trendiness associated with the brand. Without it, their sales may die off.
Right now, Tesla's stock could go either way. Tesla controls their future with regards to selling price and lowering the cost per vehicle sold, but sales volume, the cool factor and the price of gas are all out of their control. Only time will tell us where their journey is headed.
Disclaimer: The author does not directly own any shares of Tesla stock, but owns a very small amount through mutual funds including VTSAX and VFIFX.