After a significant pullback in the first half of 2021, Tesla (NASDAQ: TSLA) shares are on the rise again. Since mid-May, its share price has risen from around $550 to $750.
Recently, I’ve been taking a look at the investment case for the popular electric vehicle (EV) stock. Should I buy TSLA for my own portfolio?
Should I buy Tesla shares today?
I can see a number of reasons to invest in Tesla right now. For starters, there’s the growth potential of the EV market. This is set to boom in the years ahead and Tesla, as a market leader, is likely to benefit. In the second quarter of 2021, the group delivered 201,250 EVs, up from 90,650 a year earlier. Clearly, the company’s advancing rapidly, underpinning its status as one of the fastest growing car brands in the world.
Secondly, there’s Tesla’s self-driving car technology. The company’s made great strides in this space in recent years and the technology looks pretty exciting. If Tesla can continue to advance here and achieve full ‘Level 5’ autonomous technology in the near future, its sales could rocket higher. ARK’s Cathie Wood – who is an expert in the disruptive technology space – believes there’s a 50% chance Tesla will achieve fully autonomous driving within five years.
Wood also thinks Tesla shares could hit $3,000 in the not-too-distant future. And she’s been right about the share price before. Back in 2018, Wood predicted Tesla would hit $4,000 ($800 after the recent stock split) within five years, hitting that target two years early.
Risks that could hit Tesla’s share price
However, there are quite a few risks to be aware of here. One is that regulators are targeting the company’s self-driving technology. Currently, Tesla is being investigated by the National Highway Transportation Safety Administration for its autopilot feature.
This investigation could impact the share price if Tesla’s technology is found to be unsafe. Meanwhile, the National Transportation Safety Board believes Tesla’s use of the term ‘Full Self-Driving’ to describe its technology is “misleading and irresponsible” and encourages “abuse of the technology.”
Another risk is Tesla’s valuation, which is very high. Currently, it has a market capitalisation of $744bn. That’s about 14 times the market-cap of Ford (which has recently launched an EV version of its top-selling pickup truck). At present, the average Wall Street price target for the stock is $686. That’s below the current share price.
Going back to Wood, it’s interesting to see that she’s actually been selling some Tesla shares recently, despite her $3,000 price target. Wood likes to trade around Tesla’s volatility, buying when the share price is low and selling when it’s high. This month, ARK has sold around $300m worth of Tesla stock.
TSLA stock: my move now
Weighing every up, I’m going to leave Tesla shares on my watchlist for now. The company certainly looks interesting from an investment point of view. However, I think there are better stocks to buy right now.
Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Tesla. 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.