fbpx

Education Series: Single-Stock ETPs

Tesla in Europe: Go Long or Short?

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

On Oct. 9th, Tesla organized a county fair event that it called “Giga Fest,” inviting visitors to its newest factory set to start production of its cars in the industrial heart of Europe: Germany. The company hopes to start production in November after German government approval. With this move, the company looks set to capitalize on the popularity for electric vehicles in the Continent.

A total of 1.42 million battery-electric vehicles (BEVs) and plug-in hybrid vehicles (PHEVs) were sold in Europe in 2020, representing a 147% year-on-year increase. Europe has been an excellent market for both BEVs and PHEVs on account of a regulatory push on manufacturers to increase sales of low-emission cars in order to avoid EU emissions fines as well as generous subsidies offered by virtually every European country. In the first half of 2021, this trend has continued with a 157% increase in EV sales estimated in comparison with the same period in 2020.

On Oct. 9th, Tesla organized a county fair event that it called “Giga Fest,” inviting visitors to its newest factory set to start production of its cars in the industrial heart of Europe: Germany. The company hopes to start production in November after German government approval. With this move, the company looks set to capitalize on the popularity for electric vehicles in the Continent.

A total of 1.42 million battery-electric vehicles (BEVs) and plug-in hybrid vehicles (PHEVs) were sold in Europe in 2020, representing a 147% year-on-year increase. Europe has been an excellent market for both BEVs and PHEVs on account of a regulatory push on manufacturers to increase sales of low-emission cars in order to avoid EU emissions fines as well as generous subsidies offered by virtually every European country. In the first half of 2021, this trend has continued with a 157% increase in EV sales estimated in comparison with the same period in 2020.

Tesla’s U.S.-made Model 3s have been assembled in Vossburg, Netherlands, since 2013. In terms of top European countries for Tesla vehicles, Norway, the Netherlands, and Germany had remained a steady fixture in the top three of 10 in both 2018 and 2019.

While Tesla sales went off to a roaring start in 2020 followed by a bumpy path for the rest of the year, 2021 has been estimated to have had a lot more upticks than downturns in estimated sales figures so far.

As of the end of August, it was estimated that Tesla’s high-end Model S and Model X have lost favor in Europe. This was confirmed, in a rather roundabout fashion, by the company in its Q3 earnings release where it stated that “the Model S and Model X mix reduced YoY” in favor of “lower ASP (average selling price) vehicles.” The company’s China-made Model Y, on the other hand, has been gaining ground since its introduction to the Continent in the middle of Q3 2021. VW Group’s total sales volumes of its brand-new BEV models have swamped those of Tesla this year. Tesla also faces ferocious competition from the Hyundai-Kia Group.

In estimates for Europe’s Top 20 BEV new car registrations by model for this year, the company’s rivals have carved out vast swathes in this space.

The Plant Problem

Near the end of 2020, Tesla announced plans to move production from California to Texas. For the Model 3 production line in California, Tesla had spent almost $4 billion for a production capacity of 250,000 Model 3s a year.

When Tesla built the Model 3 factory in Shanghai (China), it was reported that the setup cost for the company was less than half this amount. This suggests that capex in California is an expensive affair. On the other hand, leaked internal documents showcase the estimated cost of the Texas plant to be only $400 million.

This leads to one of two possible concerns for the company:

  1. The estimated cost might be a little optimistic, which could snowball into additional expenses in the future.
  2. The production capacity in Texas might be smaller and more focused.

On October 12, the company announced that it will boost output from its California plant (as well as its Nevada battery plant) by 50%. As deduced earlier, capex in California is an expensive affair and this expansion could come with significant costs in upcoming quarters. In the company’s Q3 update, it was confirmed that the Texas plant would manufacture Model Ys, followed by the Cybertruck, with an expansion of capacity in coming years.

The intentions stated with regard to Giga Berlin are rather enigmatic. The Q3 update indicates that the plant will build Model Ys and some reports expect them to be Europe-specific Model Y variants, with parts being megacast to reduce the number of parts and an updated battery pack. Interestingly, the company admits to buyer preferences shifting towards the lower end of the price segment, but is working on building up capacity in vehicles for the mid-price market segment.

Furthermore, VW has entered the fray in Tesla’s heartland by initiating production of the ID.4 BEV in its Tennessee plant, with further plans to expand EV manufacturing in China as well. A continued shortfall in meeting demand would no longer mean customers would wait patiently in line: there is a growing list of increasingly attractive alternatives available at all price points. Hence, more details on the flexibility of manufacturing in the new plants would be rather welcome.

Tesla’s long-delayed 4860 battery pack – which would effectively make the company’s cars lighter and give them longer range – continues to evade a concrete completion date. The battery packs are considered “necessary” for the success of Tesla’s envisioned Cybertruck, Roadster and Semi models. During the company’s annual meeting earlier this month, Musk said that Cybertruck would reach volume production in 2023, which seems to imply that the new battery pack won’t be ready until then.

In Conclusion

If the strong sales trend seen by the company in Europe in the YTD is any indicator of public faith, the company’s brand equity within the Continent is in good shape. It is no great leap to state that establishing a production line in Europe might help bolster sales further.

However, the company’s path is fraught with red flags: increasing competition that can lap up market share, low sales volume of Model Ys causing a lag in recouping plant expenses, delays in establishing a fast-charging network in Europe, R&D bottlenecks seizing up new product development, Bitcoin holdings going south, and increased levies on the higher-end models amid governmental push to encourage lower-priced EV proliferation are just some of them.

These “red flags” will likely create bumps on the stock’s trajectory, which will make tactical plays a very viable play in either the long or short. Investors with an eye for trends and the discipline for making quick decisions will likely find several profit-making opportunities in either direction – i.e. the “long” and the “short” – in the days to come.

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

Related Posts

Search

Search
Generic filters
Exact matches only
Search in title
Search in content
Search in excerpt
Filter by Categories
Education
In the press
Market Insights
Uncategorized

Sandeep Rao

Research

Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

Violeta Todorova

Senior Research

Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.

Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.

Julian Manoilov

Senior Analyst

Julian joined Leverage Shares in 2018 as part of the company’s premier expansion in Eastern Europe. He is responsible for web content and raising brand awareness.

Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.

For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

Oktay Kavrak

Director

Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

He joined LS from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.

Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

Welcome to Leverage Shares

Terms and Conditions

Notice

If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.

If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.

Risk Warnings

The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.

This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.

Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.

This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.

United States Visitors

The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.

Persons accessing this website in the European Economic Area

Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).

Exclusion of Liability

Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.

Leverage Investment

Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.

Cookies

Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.

This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2. 

By clicking you agree to the Terms and Conditions displayed.