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The Tesla share price is falling. Should I buy now?

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Tesla
Image source: Tesla

Tesla (NASDAQ: TSLA) and its charismatic (and occasionally controversial) CEO are in the news again. On Wednesday, Elon Musk announced in a tweet that Tesla will no longer accept Bitcoin in payment for its vehicles. The Tesla share price dipped on the news, while Bitcoin dropped more than 10%.

The company had said in March that it would accept the cryptocurrency, to the despair of environmentalists. The thing with cryptocurrencies is that mining them consumes huge amounts of energy. And that’s hardly in keeping with the ideals of a company pioneering electric vehicles and helping wean us off our fossil fuel dependency.

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Investors have done well with Tesla shares in recent years, and they’ve been pretty much immune to the Covid-19 crash too. Over the past two years, the Tesla share price has spiked over 1,000%. That’s a period when America’s most buoyant index, the NASDAQ, has gained just 69%.

Tesla share price retreat

Enthusiasm for Tesla shares has been waning a little in recent months though. From an all-time high of $900 in January, we’ve seen a 34% fall. Why is that? It could be something to do with the fundamental valuation of Tesla shares. On a trailing earnings basis, Tesla is on a P/E of, erm, gulp, 590.

Still, even looking at that current breathtaking valuation, I’m reminded of my previous failure to make big money on a technology high-flyer. I’m talking about Apple, whose computers I’ve used since long before iPhones were invented. Many times I’ve look at Apple, and declined to buy for one reason. Though I loved the products and the company, I kept thinking the shares were overvalued. Of course, the price just kept on going up, and up, and up… So is the Tesla share price too high or does it have further to go?

Well, that P/E multiple is based on last year’s earnings. And this year’s Q1 results show sales are soaring. Deliveries more than doubled from the same period a year ago, leading to a 74% jump in revenue. Non-GAAP earnings per share rose more modestly, from 79 cents to 93 cents. But why have Tesla shares gone into decline?

The Bitcoin effect

As my Motley Fool colleague Edward Sheldon pointed out, Tesla’s figures were boosted by sales of regulatory credits. The company also got a lift from $101m in Bitcoin sales. So are we looking at an electric vehicle pioneer, or a Bitcoin speculator? Elon Musk’s apparent attachment to cryptocurrency suggests at least some of the latter, and a lot of investors will surely see that as a risk too far. It must surely contribute to the Tesla share price dip.

I really am impressed by what Tesla has achieved so far. I’m also a big fan of Elon Musk personally. But I’m reminded of historical transport technology progress. It wasn’t the earlier pioneers of aviation that made the big profits. And Warren Buffett famously said of the early motor car pioneers that investors would have been better off shorting horses.

So no, I won’t buy Tesla, because I see the risks as too much for my likely potential profits. But I do know I might be missing another Apple.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Apple and Tesla and recommends the following options: short March 2023 $130 calls on Apple and long March 2023 $120 calls on Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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