With the stock up 65% year-to-date, and by more than 200% over the past 12 months, Tesla (NASDAQ: TSLA) is one of the top-performing blue-chip investments in the world this year.
Some analysts believe the company’s potential is only just beginning, which begs the question, even after the stock’s performance over the past 12 months, is Tesla one of the best shares to buy right now?
Company outlook
Investors have been buying into the electric vehicle (EV) manufacturer following a landmark agreement with rental company Hertz.
The rental company announced last month that it would grow its fleet of battery-based EVs with “an initial order of 100,000 Teslas by the end of 2022.” This order could be worth several billion dollars to Tesla.
It seems as if there is no shortage of demand for the company’s EVs. Tesla produced just shy of 510,000 cars in 2020, a 39.5% increase on 2019. It looks as if the business will undoubtedly beat this figure in 2021. It delivered more than 240,000 vehicles in the third quarter alone.
Tesla’s issue is not demand. It is supply. The company’s CEO, Elon Musk, has said that the global supply chain issues have caused “insane difficulties” for Tesla.
At the beginning of September, he reiterated the point, declaring that supply chain issues have resulted in “super crazy” shortages for some of the company’s components.
Until these issues are resolved, the company will struggle to meet demand. And the deal with Hertz is not going to change that.
Musk tweeted yesterday that as Tesla has “far more demand than production,” it will only sell its cars to the rental company “for the same margin as to consumers.” Therefore, the deal will have “zero effect on our economics.” He also said that no contract has been agreed upon between the two parties.
Since the deal with Hertz was first announced, Tesla shares have jumped more than 30%. I think this suggests the market has gotten ahead of itself. As Musk noted, no contract has been signed between the two parties so far, and the agreement will not solve Tesla’s supply issues.
One of the best shares to buy now?
Therefore, while I am encouraged by the surging demand for EVs, I do not think this is one of the best shares to buy now. I think the market is overlooking the company’s supply issues and concentrating too much on its potential.
That is not to say that I would not buy Tesla at all. At current levels, the stock just does not excite me. As well as its supply chain issues, the company is also facing increased competition from competitors. I do not think its lofty valuation even considered these risks, which is a big red flag for me.
As such, I would not buy Tesla shares at current levels. However, I will be keeping a close eye on the stock and looking for a chance to purchase at a lower valuation, even though there is a chance to stock will never return to more appropriate levels.
