How to buy Tesla shares (TSLA)

·7-min read
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Investors in Tesla suffered a near 50% fall in the value of their shares in the first six months of 2022. Supply chain issues due to lockdowns in Shanghai, Elon Musk’s (now aborted) bid for Twitter and increasing competition have taken their toll on Tesla’s valuation.

However, there’s been some welcome relief in the last three months with Tesla’s share price increasing by almost 40% to $285 (£244), well above the 7% rise in the Nasdaq Composite index.

Despite the fall in share price, Tesla has delivered an annual return of 65% to shareholders over the last 10 years, according to Morningstar, although it has not historically paid a dividend.

Mixed second quarter results

Although Tesla reported a 42% year-on-year increase in second quarter revenue to June, this was only part of the picture. Quarterly revenue of $16.9 (£14.4) billion represented a 10% decrease on Tesla’s first quarter revenue of $18.8 (£16.1) billion.

Gross margin in the automotive division also fell from 32.9% to 27.9% from the first to second quarter. Inflation and extended shutdowns of the company’s Shanghai factory pushed up costs, although this was partly offset by higher car prices and the sale of regulatory credits.

Tesla delivered EPS of $2.27 (£1.94), comfortably ahead of analysts’ forecasts, thanks to tight control of operating expenses.

Mr Musk pointed to production constraints being the key challenge facing the company, with long lead times for deliveries. Despite the issues in Shanghai, Tesla produced a record 259,000 cars in June, helped by the new factories in Berlin-Brandenburg and Austin.

Tesla also converted 75% of its Bitcoin purchases into fiat currency in the second quarter, adding $936 (£800) million of cash to the balance sheet. Mr Musk commented that the company required additional liquidity as a consequence of the shutdowns in the Shanghai factory.

Outlook for Tesla shares

Looking forward, inflationary pressures are likely to have an impact on both consumer spending and the cost of components for Tesla. That said, the electric car market is forecast to continue to grow strongly due to the global drive towards decarbonisation and net zero emissions.

Tesla has dominated global electric car sales, with the Tesla Model 3 being the highest-selling plug-in electric vehicle in the world in 2021. However, competition is mounting, both from traditional and pure play electric car manufacturers.

Chinese company BYD dethroned Tesla as the largest electric car manufacturer by global sales in the first half of 2022, while VW and the SAIC-GM-Wuling joint venture are close behind. It remains to be seen whether Tesla can overcome its current production bottlenecks to regain its market-leading position.

According to WSJ Markets, the median of the analysts’ 12-month share price forecasts is currently $321. At the current share price of $285, this suggests that there is some potential upside, although the forecasts range from $83 to $527.

Let’s take a closer look at what you need to know about buying and selling Tesla shares.

Investing in share-based investments can be a good way to produce higher returns than cash-based investments. However, your capital is at risk, your investment can go down as well as up, and you may not get your money back. If you are unsure as to the right investment, you should seek financial advice.

How to buy Tesla shares

Before you decide to open an account, you should set your investment goals, including the amount you wish to invest, the length of time you plan to invest for, whether you are comfortable with the risks involved and whether you can afford to lose some, or all, of the money.

If you are looking to buy Tesla shares, the following steps will guide you through the process:

1. Open a trading account

Whether you’re an experienced share trader, or a beginner, you’ll need to open an account with a trading platform.

It’s worth taking the time to review the costs involved - most, but not all, platforms charge a share trading fee and some may also charge an annual platform fee for holding shares.

There are a variety of trading platforms available, from online DIY platforms such as Hargreaves Lansdown, AJ Bell and interactive investor, to app-based platforms such as eToro and Trading212.

2. Where is Tesla traded?

The ticker symbol for Tesla Inc is TSLA. Tesla is traded on the technology-focused Nasdaq exchange in the US which is open for trading from 9.30am to 4pm (Eastern time) from Monday to Friday.

Most trading platforms allow you to purchase US shares. You will be charged a foreign exchange fee (typically around 1%, but may range from 0.15% to 1.5% depending on your platform). Many platforms also charge a slightly higher trading fee for buying US shares.

If you plan to trade US shares regularly, it’s worth looking at the best trading platforms as their fees can vary significantly. A small number of trading platforms, such as IG, allow you to hold your account in US dollars which may reduce the foreign exchange you have to pay.

You will be requested to complete a W-8BEN form which allows you to benefit from a reduction in withholding tax from 30% to 15% for qualifying US dividends and interest.

You will also have a foreign exchange exposure if you hold US shares. If the pound weakens against the dollar, your shares will be worth more in pounds sterling (and vice versa).

As with UK shares, any profit on US shares will be subject to Capital Gains Tax, subject to your annual allowance (currently £12,300). You will not have to pay Capital Gains Tax if you hold the shares in an Individual Savings Account or Self-Invested Personal Pension.

3. Do your research

To find out more about Tesla, visit the company’s investor relations page.

It’s also worth comparing Tesla’s valuation to other comparable electric vehicle manufacturers. One way is to look at the relative price-earnings ratios - shares trading on a high price-earnings ratio have high expectations of significant growth in the future.

Another useful research tool is brokers’ 12-month share price forecasts, which are available on financial websites. There are currently over 40 brokers following Tesla shares, and their price forecasts give an indication of the upside and downside risk of the Tesla share price over the next year.

4. Should you invest on a monthly basis or as a lump sum?

People tend to buy shares either as a lump sum purchase, or drip-feed their investment on a monthly basis over time.

Monthly investing is often referred to as a means of ‘pound cost averaging’, whereby making regular contributions helps to smooth out the highs and lows of the stock market. This provides some protection if the share price falls after you have bought shares, as you will effectively invest at the average share price over the whole period.

However, drip-feeding your investment may sacrifice capital growth if the share price is rising and you may also pay more in share trading fees.

5. Place your order

Once you’re ready to buy shares in Tesla, log in to your trading account. Type in the ticker symbol TSLA and the number of shares you want to buy, or the amount of money you want to invest.

Many platforms also allow you to add a ‘stop loss’ after you’ve bought the shares, which allows you to limit your losses if the share price falls. For example, if you buy shares at £100, and set a stop loss of £90, your shares would be sold if the share price falls below £90, limiting your potential loss to 10%.

6. Monitor Tesla’s performance

Whether you hold shares in just a few, or many, companies, you should review how your shares are performing on a regular basis.

Monitoring your portfolio allows you to make any necessary adjustments, whether buying additional shares, or selling part of your holding.

How to sell your Tesla shares

When you want to sell your Tesla shares, log in to your trading platform, type in the ticker symbol (TSLA) and select the number of shares you want to sell.

If you’ve made a profit, you may have to pay Capital Gains Tax (CGT) on the sale of your shares. However, as mentioned earlier, this is not the case for tax-exempt wrappers such as Individual Savings Accounts.

How to invest in Tesla indirectly

You may make a profit if you invest in Tesla shares, however, holding shares in an individual company is higher risk than investing in a wide range of shares. A diversified portfolio should also reduce volatility.

One option is to invest indirectly in Tesla by investing in a fund, investment trust or exchange-traded fund (ETF) that holds Tesla shares, amongst others. These products provide a ready-made portfolio of shares in a number of different companies.

There is a wide range of options, including global and US funds and investment trusts, together with ETFs that track the S&P 500 index. However, you will pay an annual management fee for holding these products.