Analysis of Tesla's Financial Instruments and Market Performance

This report analyzes the performance of Tesla's stock from December 2018 to March 2019, focusing on the factors that influenced its share price. The analysis explores the impact of the US-China trade war, missed tax credits, and falling profitability on Tesla's stock. The report examines how price reductions in China, operational costs, and workforce reductions affected investor confidence and the company's financial performance. It also includes references to relevant articles and data sources to support the findings. The report concludes that macroeconomic conditions and specific business factors significantly impacted Tesla's stock during the period. This report provides a comprehensive overview of the financial instruments and market dynamics influencing Tesla's stock price.

Running head: FINANCIAL INSTRUMENTS AND MARKET
Financial Instruments and Markets
Name of the Student:
Name of the University:
Author’s Note:

1FINANCIAL INSTRUMENTS AND MARKET
Table of Contents
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
Tesla Triples Deliveries of Electric Cars but Share Price Tumbles.......................................2
US-China Trade War and Missed Tax Credits......................................................................3
Stronger Demand and Higher Profitability............................................................................4
Conclusion..................................................................................................................................5
References..................................................................................................................................6

2FINANCIAL INSTRUMENTS AND MARKET
Introduction
Tesla Incorporation is an American Automobile Company and an energy company
located in Palo, California. The share price analysis was done for the American Multinational
Company whereby the movement of the share price for the period of 1st December 2018 to 1st
March 2019.
Discussion
Tesla stocks fall with fall in profitability
Article: The share price of the Tesla Company saw a major downfall of about 8% on 1st
March itself when the company announced a fall in the profitability of the company for the
first quarter itself. The news was also followed by the Tesla Company closing down most of
its retail locations1.
Theoretical Reason: The theoretical reason for the fall in the share price of the company can
be well attributed to the rising operational costs of the company and the onetime tax charges
or the tax credits paid by the company. The changing business factors and the macro-
economic conditions would be the key reason that impacted the fall in the share price of the
company. Auto giant company Tesla has always reported better performance but the poor
performance of the company in the first quarter of the year 2019 made the investor less
confident about the short term performance of the company which impacted the share price of
the company. The share price was almost impacted by about 7.84% on 1st March 2019.
1 "Tesla Plummets Amid Profit Warning, Store Closures, And Model 3 Announcement (TSLA) | Markets
Insider". 2019. Markets.Businessinsider.Com. https://markets.businessinsider.com/news/stocks/tesla-stock-
price-shares-fall-amid-model-3-announcement-2019-3-1027997735.

3FINANCIAL INSTRUMENTS AND MARKET
Figure 1: Tesla Share Price
Source: (Tesla Share Price 2018)2.
US-China Trade War and Missed Tax Credits
Article: The trade war going between the two economies was affecting the major
multinational companies in terms of the business and the sustainability at cost of losing
market share and profitability. On 23rd December 2018 the company announced that the
company is strategizing the current ongoing situation (US-China Trade War) by reviewing
the price levels of the electric car segment in China. The news was followed by the reduction
in the prices of the certain models of Tesla in the electric car segment.
Theoretical Reason: The price reduction done by the company was for the second time in
China for some of the electric car segments by 7.6%. The move for the reduction in the prices
of the company was seen in some of the some Tesla Models like Model S and Model X
vehicles in China by about 12% and 26%3. The action was taken by the company for
2 "Tesla Share Price". 2018. Google.Com. https://www.google.com/search?
q=tesla+share+price&rlz=1C1CHBF_enIN844IN844&oq=tesla+&aqs=chrome.1.69i57j35i39j0l4.2807j0j7&so
urceid=chrome&ie=UTF-8.
3 "Tesla Sinks After Musk Says It'll Reimburse Customers For Missed Tax Credits And Some Model 3 Prices
Get Cut In China (TSLA) | Markets Insider". 2019. Markets.Businessinsider.Com.
https://markets.businessinsider.com/news/stocks/tesla-stock-price-reportedly-cut-some-model-3-prices-china-
2018-12-1027831299.

4FINANCIAL INSTRUMENTS AND MARKET
contradicting the ongoing US-China Trade affairs which ultimately increased the prices of the
imported vehicles in China. In order to remain and capture the same market share the
company decided to reduce the prices of some of the models in the Chinese Market. The
reduction in the price level of the electric car will be significantly affecting the profitability
margin of the company and the overall profit generated from the Chinese Economy.
The CEO of the Tesla Company Elon Musk said that it will be reimbursing the
customers for the missed tax break because of the delay in the delivery of it cars. The news
impacted the share price of the company by about 6.17% leading to a significant fall in the
share price of the company to around $300.63. The couple of events impacted the share price
heavily in the month of December where the share price showed a downward trend of about
11% from 19th December 2018 to 24th December 2018.
Figure 1: Tesla Share Price
Source: (Tesla Share Price 2018)4.
4 "Tesla Share Price". 2018. Google.Com. https://www.google.com/search?
q=tesla+share+price&rlz=1C1CHBF_enIN844IN844&oq=tesla+&aqs=chrome.1.69i57j35i39j0l4.2807j0j7&so
urceid=chrome&ie=UTF-8.

5FINANCIAL INSTRUMENTS AND MARKET
Tesla Stock Slammed
Article: The electric motor vehicle company share prices slid down by about 9% on 18th
January 2019, when the CEO of the company announced that it would be reducing the
workforce of the company by about 7% in order to reduce the operating cost of the company5.
Theoretical Reason: The operating profitability of the company is very crucial for the better
financial performance of the company. However on account of rising costs in the operating
expenses for the company the company had to reduce it’s some of the operating expenses.
The reaction taken by the market can be also in the form that the operating activities of the
company is reducing and the retrenchment benefits the company had to pay off for such a
large reduction in the workforce of the company. However there are positive benefits of these
move taken by the company in the form of technology taking place instead of the human
capital in the organisation.
5 Sparks, Daniel. 2019. "Why Tesla Stock Was Slammed Today -- The Motley Fool". The Motley Fool.
https://www.fool.com/investing/2019/01/18/why-tesla-stock-was-slammed-today.aspx.

6FINANCIAL INSTRUMENTS AND MARKET
Figure 1: Tesla Share Price
Source: (Tesla Share Price 2018)6.
Conclusion
The share price of the company has been affected by various macro-economic
conditions like US China Trade war and business factors like delay in deliveries and robust
growth rate in the year 2019. High Volatility and important political and social events like tax
credits were some of the key issues addressed that affected the share price of the company in
the trend period of December 2018-March 2019.
6 "Tesla Share Price". 2018. Google.Com. https://www.google.com/search?
q=tesla+share+price&rlz=1C1CHBF_enIN844IN844&oq=tesla+&aqs=chrome.1.69i57j35i39j0l4.2807j0j7&so
urceid=chrome&ie=UTF-8.

7FINANCIAL INSTRUMENTS AND MARKET
References
"Tesla Share Price". 2018. Google.Com. https://www.google.com/search?
q=tesla+share+price&rlz=1C1CHBF_enIN844IN844&oq=tesla+&aqs=chrome.1.69i57j35i39
j0l4.2807j0j7&sourceid=chrome&ie=UTF-8.
"Tesla Plummets Amid Profit Warning, Store Closures, And Model 3 Announcement (TSLA)
| Markets Insider". 2019. Markets.Businessinsider.Com.
https://markets.businessinsider.com/news/stocks/tesla-stock-price-shares-fall-amid-model-3-
announcement-2019-3-1027997735.
"Tesla Sinks After Musk Says It'll Reimburse Customers For Missed Tax Credits And Some
Model 3 Prices Get Cut In China (TSLA) | Markets Insider".
2019. Markets.Businessinsider.Com. https://markets.businessinsider.com/news/stocks/tesla-
stock-price-reportedly-cut-some-model-3-prices-china-2018-12-1027831299.
Huang, Yuqi. "A Potential Company or Not: the Analysis of Tesla." 2019 4th International
Conference on Financial Innovation and Economic Development (ICFIED 2019). Atlantis
Press, 2019.
Rushe, Dominic. 2019. "Tesla Triples Deliveries Of Electric Cars But Share Price
Tumbles". The Guardian. https://www.theguardian.com/technology/2019/jan/02/tesla-triple-
deliveries-electric-cars-shares-fall.
Sparks, Daniel. 2019. "Why Tesla Stock Was Slammed Today -- The Motley Fool". The
Motley Fool. https://www.fool.com/investing/2019/01/18/why-tesla-stock-was-slammed-
today.aspx.