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How to buy Tesla stocks in 2021

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Author: Tony Loton

This guide tells you how to invest in Tesla stock (ticker symbol: TSLA), and why you might want to, taking various fundamental analysis factors into account. But first, here’s a quick summary of the company.

Although Tesla was founded by two other people in 2003, it has been run by infamous entrepreneur Elon Musk since 2008. This Californian company designs and manufactures electric cars and the batteries that power them, and its subsidiary company SolarCity specialises in installing solar photovoltaic systems in the United States.

Tesla CEO Elon Musk is also famous for heading the SpaceX company and for boosting the value of some cryptocurrencies by tweeting about them. In February 2021, Tesla bought $1.5 billion worth of Bitcoin, and the company now accepts bitcoins as payment for its products. Consequently, investors in Tesla shares gain some exposure to Bitcoin.

How to Buy TSLA Stocks in 5 Easy Steps

  1. 1
    Visit eToro through the link below and sign up by entering your details in the required fields.
  2. 2
    Provide all your personal data and fill out a basic questionnaire for informational purposes.
  3. 3
    Click 'Deposit', choose your favourite payment method and follow the instructions to fund your account.
  4. 4
    Search for your favourite stock and see the main stats. Once you're ready to invest, click on 'Trade'.
  5. 5
    Enter the amount you want to invest and configure your trade to buy the stock.

Everything You Need To Know About Tesla

Now let’s get to know Tesla in more detail by exploring its history, strategy, and the way(s) it makes money.

Tesla History

Tesla, Inc. was founded in 2003 (as Tesla Motors) by Martin Eberhard and Marc Tarpenning, with funding mainly from Elon Musk who sold his previous company — PayPal — to Ebay in 2002. Musk took Tesla’s reins as CEO in 2008 and the company started producing its first car in 2009. In 2010, Tesla became the first car company since Ford to launch its initial public offering (IPO) on the USA’s tech-oriented Nasdaq Stock Exchange. Tesla achieved its goal of producing half a million cars in 2020, and in 2021 it announced that it would soon accept Bitcoin as a form of payment for its products— at the same time as it invested US$1.5 billion in the cryptocurrency.

What is Tesla’s Strategy?

Tesla’s strategy has transitioned — and still is transitioning — from producing high price / low volume vehicles to producing lower-price / higher-volume vehicles as it brings down the cost of the batteries that power them. Tesla is vertically integrated, which means it produces everything from components to finished products and even the proprietary charging stations for its cars. It sells cars direct to consumers rather than through a traditional dealer network.

How Does Tesla Make Money? 

Tesla makes money by selling cars and by licensing its technology to other manufacturers for the purpose of “accelerating sustainable energy”. Since Tesla took a big stake in Bitcoin in February 2021, it also stands to make money from any price appreciation of that cryptocurrency. 

How Has Tesla Performed in Recent Years?

After bobbing along the bottom for several years (although it might have looked more volatile at the time), the Tesla stock price skyrocketed to rise more than tenfold between December 2019 and January 2021, since when the price has bounced up and down. The question for prospective investors is whether this stellar performance was driven by mere speculation (traders bidding up the price) or by good — and sustainable — business fundamentals.

Tesla Fundamental Analysis

Unlike technical analysis, which traders use to look for patterns in share price movements, fundamental analysis is what investors use to determine the underlying health and intrinsic value of a company. When you read about fundamental analysis, you’ll see terms such as P/E ratio, revenue, earnings, earnings-per-share, dividend yield, and cash flow. So, let’s look at what those terms mean.

Tesla’s Revenue

In simple terms, a company’s revenue is the amount of money it brings in from the sales of its products or services before any costs have been deducted to arrive at the company’s net earnings (or profits).

Revenues will typically appear as the “top line” of the company’s income statement, and the term “revenue growth” refers to rising sales from year to year (which is a good thing).

Tesla’s Earnings-per-Share

A company’s earnings are the profit it has made during the year once all costs of doing business have been deducted from its revenues. It is what you might call the “bottom line”.

The total earnings are irrelevant to you as a shareholder because you don’t own the whole company, so what you’re interested in is the amount of earnings per share that you hold.

Tesla’s earnings-per-share is calculated as its net profit (minus dividends paid to preferred stockholders) divided by the number of common shares outstanding. The good news is that you don’t have to calculate the EPS yourself because your chosen stockbroker or one of the leading financial websites will have done it for you.

The earnings-per-share figure feeds into the P/E ratio, discussed next.

Tesla’s P/E Ratio

A company’s price-earnings ratio (P/E) is calculated as the price of its shares divided by the earnings-per-share. 

With Tesla’s share price sitting at just over 700 (for example) and its earnings-per-share being 0.64, the P/E ratio would be about 1094. This means that, at the time of writing, investors are willing to pay a whopping $1094 for every dollar the company earns in profits annually. Put another way, it would take Tesla 1094 years to earn enough money to pay back your investment in the company.

A super-high P/E such as this one suggests that the company is overvalued (i.e., not worth the current share price at the time of writing) but that investors think it will make a lot more money in the future (thus justifying the high share price).

Tesla’s Dividend Yield

A company’s earnings are all well and good but they won’t make you rich as an investor unless they’re shared out in the form of dividends. Companies typically pay out a share of their profits twice-yearly as dividends.

If a company pays out annual dividends amounting to 1 cent per share, and if the current share price is one dollar, then the “dividend yield” would be 1%.

You can find a company’s dividend yield alongside the other fundamentals on your stockbroker’s website or one of the leading financial websites, and you can compare the percentage figure with the interest rate you’d get by depositing your money with a bank instead.

Now the bad news. Up to April 2021, Tesla has never paid any dividends to shareholders, so its dividend yield is 0%. However, this lack of a regular income hasn’t stopped some investors from making serious money from Tesla simply by holding its shares while the share price went up.

Tesla’s Cash Flow

One more fundamental metric you might want to know about is a company’s cash flow, which you can typically find in the “financials'' section of the company information on your stockbroker’s or financial information provider’s website. What you’re really interested in is the free cash flow figure.

So, what is free cash flow?

Free cash flow is the amount of money a business has left over after paying all the costs of staying in business, including capital expenses for buildings. So, it’s like the money you have left over to spend each month (or year) after paying your mortgage and other bills.

A company’s free cash flow can be used to fund the company’s expansion, to pay down some of its debt, or to pay out dividends, all of which may be good for you as an investor.

Tesla’s free cash flow position improved from negative $4.1 billion in 2017 to positive $2.7 billion in 2020.

Why Buy Tesla Stocks?

On many fundamental metrics, Tesla might not be considered a good investment. However, this company is what we might call a “growth stock” like Microsoft and Amazon in their early days. These kinds of companies typically don’t make profits or pay dividends at first but they grow to take over the world.

Here are three reasons why you might want to buy Tesla stock:

  • It’s an innovative company that continues to disrupt the transportation and clean energy markets
  • Its share price has increased a lot and could go even higher
  • It provides some exposure to the Bitcoin boom without actually buying or betting on bitcoins

Expert Tip on Buying Tesla Stock

Since the Tesla share price could be volatile, it may be a good idea to buy shares on a “quote and deal” basis or by placing a “limit order” so that you don’t pay more for your shares than you really want to if the price spikes up. To put this another way, it might be best not to place an “at best” buy order outside of market hours.
- Tony Loton
Buy Telsa Stocks Today!

5 Things to Consider Before You Buy Tesla Stock

There are at least five things you should consider before buying Tesla stock or any other company stock.

1. Understand the Company 

Make sure you understand the company as a prospective customer and a prospective investor. Some seasoned investors such as Peter Lynch suggest that you should invest in companies you use yourself, but don’t do this at the expense of ignoring the financial fundamentals. A good company whose products you like does not automatically make a good investment.

2. Understand the Basics of Investing

Learn the basics of investing before going all-in. Learn about things like risk management (how to get out if the going gets tough), money management (not committing all your cash at once), and diversification (spreading your risk across several stocks). Some people choose first to “paper trade” in a demo account, but — with no real money on the line —  this doesn’t give you a good feel for the psychologically challenging fear or elation you’ll feel when investing with real money.

3. Carefully Choose Your Broker

There are several things you should consider when choosing a broker to trade or invest with, the most important of which is whether they are registered with the financial services regulator in your country. This means that they shouldn’t be able to run away with your money, and you may get some protection under schemes such as the UK’s financial services compensation scheme (FSCS).

Next, you can think about things like the costs of buying and selling shares via the brokerage account, the responsiveness of its customer services staff, the access channels for making investments (web, mobile, telephone), and the range of stocks that can be bought via the broker’s online platform.

Finally, you might think about the technical aspects of trading and investing. Does your prospective broker provide price charts for free, and does it allow you to use advanced order types such as “stop orders” to limit your losses?

4. Decide How Much You Want to Invest

There is one simple rule for successful stock investing: don’t put all your money into a single stock all in one go.

Successful investors practice diversification to spread their risk between several stocks. Rather than investing £50,000 in one stock, it may be better to invest £5,000 in each of ten different stocks. It may also be better to scale into an investment by buying £5,000 worth of shares in a stock and then buying even more shares with an additional £5,000 investment if the price falls in the future, thus lowering your average purchase price compared with going all-in at the start. But beware of throwing good money after bad at a single stock whose share price could fall all the way to zero.

Whatever you do, you should only invest surplus money that you don’t depend on for something else (like paying the rent). And never — ever — borrow money to invest in stocks until you’ve learned about “leverage”.

5. Decide on a Goal for Your Investment

So, you want to invest, but why? Maybe it will be a fun thing to do, pitting your wits against the markets with your spare cash. Maybe you have a more serious long term goal in mind, like building up a college fund or growing your pension pot.

Your motivation for investing will determine your investment timeline and your attitude to risk. If you need to get your invested money back within a year, you’ll probably panic-sell at a loss if the markets crash. But if you can afford to wait it out for 10+ years, you will console yourself with the fact that the markets usually bounce back… eventually.

Keep legendary economist John Maynard Keynes’ advice in mind when deciding on your investment horizon:

“The stock market can remain irrational longer than you can remain solvent.”

What Should I Do Next to Buy Tesla Stocks?

Now let’s summarise what you’ve learned from this guide.

Tesla is an innovative company that is disrupting the electric vehicle and clean energy industries. You can buy Tesla stocks via a stockbroker, and you might want to do so if you buy into its “growth” story.

If you’re ready to invest right now, you need to sign up for a stockbroker’s share dealing account, find Tesla in its categorised list of stocks, and place an order to buy at a quoted price or the maximum price you’re willing to pay.

If you’re not ready to invest right now, you can read our other guides to get more comfortable with investing, and maybe make a start by “paper trading” using a stockbroker’s demo account.

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Frequently Asked Questions

  1. Tesla is listed on the USA’s tech-oriented NASDAQ stock exchange, but on some stockbrokers’ websites you might see more than one listing, for example, “Tesla Motors Inc” and “Tesla Inc (DE)”. The only real difference is that the former lets you invest at the US dollar price whereas the latter lets you invest at the Euro price (which should differ only due to the exchange rate).

  2. Tesla has never declared or paid cash dividends on its common stock and does not anticipate doing so in the foreseeable future. This is not unusual for a growth stock with a volatile share price and potentially inconsistent profits. More mature motor vehicle manufacturers like Ford and General Motors do pay dividends.

  3. Some investors and most traders place a “stop order” to sell their stock if its share price falls to a specified level, to get out with an acceptable loss before the price falls even further. The trick is to set the stop distance not too tight (else you’ll get “stopped out” unnecessarily on a minor price correction) and not too wide (else you won’t stop out until you’ve already suffered a big loss).

  4. Although a stop order is often called a “stop-loss order”, it can also be used to secure some of your profit when the price of your investment rises. When Tesla’s share price rose from about 80 to about 800 over the course of a year, you could have secured most of your profit — without selling your shares too soon — by setting a stop order at the 600 level.

  5. Whereas we’ve focused on fundamental analysis in this guide, because it’s favoured by investors, you might also consider taking a look at Tesla’s technical analysis picture that is favoured by traders. This means looking at price charts to find patterns that suggest the share price could go up or down.

  6. Tesla announced a five-for-one stock split in August 2020, but this was merely a technicality which wouldn’t affect the value of your investment. It simply means that Tesla investors who held 100 shares at the time would henceforth own 500 shares worth one-fifth of the previous price. So, nothing really changed.

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