There are not many more controversial actions than Tesla (INSTRUCTION: TSA), a maker of electric cars that has boosted the car worldwide since its initial public offering in 2010.
After initially producing the Roadster "concept car", Tesla moved to the Model S, high-quality sedan and Model X, a luxury SUV. But those achievements are paltry compared to the introduction of Model 3, Tesla's first mass-market car starting at just over $ 35,000, which was unveiled in 2017.
The Model 3 has the potential to be a game changer in the automotive industry, as a low-cost vehicle could spur mass adoption of EVs, leading to a virtuous circle where Tesla achieves large economies of scale and increases margins and profits. Next year, the company will unveil the Model Y, an available crossover vehicle that can match or exceed the success of the Model 3. Even more exciting, Tesla plans to unveil its new pickup truck next week on November 21st.
Although the stock is barely positive for the year, it is up over 45% over the past three months. The increase came after a third-quarter report that beat profit expectations, as well as the excitement over new vehicles yet to be introduced.
Of course, Musk and his team are not thinking in the short run, but in the long run. And over the long run, Tesla's shares have been massively profitable for early investors – even if the company itself is currently unprofitable as it invests in non-profit growth. So how well did the first shareholders stand out?
How low was the IPO price?
None of these recent successes were convinced when the company went public in June 2010. All investors had to keep up was faith in Elon Musk and his team and their vision of creating the first new public car company in the United States since 1956. Adding even greater risk, it was an all-electric vehicle, a concept that many large shareholders failed to produce profitably.
In fact, with little more than vision, leading technology, and a serial entrepreneur with great track record, Tesla's stock went public for just $ 17 on June 29, 2010. On the first day of trading, its shares shot up over 40% to $ 23.89. However, even if you were a public investor who did not calculate the IPO price before trading, you would still make some fortune.
Today, Tesla shares cost $ 347, more than 20 times their IPO price and more than 14 times the end of the first trading day. That's a total return of 1.941% and 1.322%, respectively. If you invested $ 5,000 and were fortunate enough to get $ 17 USD IPO entry, your Tesla fund today would be worth $ 102,050. For over nine years and four months, that's an average annual return of 38.3%.
The current controversy sounds a lot like the past
Of course, Tesla has long been controversial. Even today, many prominent investors like Hanos and David Einhorn are Tesla's short stocks. Musk and Einhorn even went to war with words Twitter more recently, with Musk deceiving the loss of Einhorn's short bet and Einhorn disputing Tesla's truth about finances. Some other skeptics have fixed the company's many executive departures. On the other hand, bulls could conclude that high turnover is the result of Tesla's difficult workaholic culture, which generates overall benefits.
However, controversy has always followed for Tesla, even when its price was one-tenth of where it is now. As you can see, Tesla's short interest accounted for about 20% of the total shares remaining in 2012.
Needless to say, these short bets against Tesla have lost a lot of money so far.
It pays to be optimistic
It is difficult to see exactly where Tesla's shares will go from here, as its market capitalization has grown to over $ 60 billion and few would ever call it "cheap". It was also difficult to spot the amazing success it will have in the market when it is released in 2010.
However, it was not difficult to know that Elon Musk was smart, technologically savvy and had the vision to launch a highly disruptive product. Musk's pitch was that Tesla has an unmatched speed of innovation that can catapult it to large, bureaucratic and outdated officials. Given the recent results, Tesla seems to be making a promise.
Of course, exciting development companies don't always succeed (Moveipass, anyone?). However, the lesson for investors – especially young investors – is that speculation about disorder companies with highly invested founding CEOs can sometimes pay off, and in a big way. As you can see, as long as you are well diversified, the return of just one Tesla, if sustained in the long run, can offset many other growth investments that do not. Just remember to make a large number of bets and positions in size according to your risk tolerance.
It looks like Tesla is well on its way to making history. While stocks may not generate huge returns in the past nine years, it will certainly be exciting to watch.