Investment idea: Tesla Inc.

Many consider the CEO of Tesla, Elon Musk, as a pioneer of the automotive sector. Tesla’s corporate culture is closely related to the innovation and development to this day. With the introduction of one of the first plug-in cars, the Tesla Model S gained much reputation and interest in the premium luxury class of the automotive electrical sector. This year, Tesla is aiming to enter the mass market with the Model 3 and thus trying to increase the annual number of cars up to 500,000 in 2018.

However, many regard those ideas as unrealistic due to the fact that Tesla does not want to go through a beta-stage for the new Model 3. Possible consequences are production errors and recalls of cars. Finally, this could lead to losses in reputation.

Compared to other car manufacturers, Tesla does sell fewer electric cars than its competitors. BMW, for instance, sold about 100,000 plug-in cars whereas Tesla sold only 80,000. Measured by the market capitalization rate, the contemporary difference between BMW and Tesla is relatively small (USD 56 bn. to USD 47 bn.), considering that BMW does sell over two million cars a year.

Investors are positive about Tesla’s business model. The most recent example illustrates Tencent. The Chinese Internet company had already invested in autonomous vehicle engineering before and invested in Tesla recently. In addition to that, Tesla issued a new bond and offered new shares in order to increase its capital. At present (7/4/2017) , the Tesla shares are traded at USD 298.50 . Further development remains to be seen.

Bloomberg analysts do assess a 12-month target price of USD 264.50. Eight analysts recommend BUY, ten recommend HOLD and 6 recommend SELL. However, since the share’s performance depends on corporate-, industry- and economic-related conditions, investors should always consider the risk of their investments. Developments could turn out differently than expected by investors.

Announcement

Section 871(m) of the U.S. Internal Revenue Code and the provisions issued thereunder (the "Regulation") stipulate that for certain financial instruments (such as for the securities issued by Vontobel Financial Products GmbH (the “Issuer”)) a withholding tax (of up to 30%) shall be imposed if the payment (or deemed payment) on the financial instruments is contingent upon, or determined by reference to, the payment of a dividend from sources within the United States.

The Regulation will become effective on 1 January 2017, impacting in the first instance financial instruments with a delta of one linked to US incorporated securities. The “delta” of an instrument is a measure of the relationship between changes in value of the instrument and changes in value of the underlying stock. If an instrument has a delta of one, changes in the value of the instrument should mirror changes in the value of the stock exactly.

Products issued by the Issuer prior to the Regulation effective date are expected to be out of scope due to grandfathering provisions. However, products with a delta of one (new issuances or sales from existing inventory) will become in-scope for the regulation if traded after 1 January 2017. Unfortunately, due to the nature of products where the end investor of the product is not known to the issuer of the product or a withholding agent, we need to ensure that all securitized products are fully fungible for the purposes of the Regulation.

For this reason, several existing products with a delta of one issued prior to 1 January 2017 will be quoted bid-only after 1 January 2017 in order to remain out of scope of the Regulation (with the exception of products linked to qualified indices or out-of-scope underlyings).