Bullish: Rupert Hargreaves
I think Tesla (NASDAQ: TSLA) has transformed the global automotive market over the past decade.
As demand for the company’s electric vehicles has rocketed, other vehicle manufacturers have rushed to catch up. While they are making substantial progress, none have the market reach of this market leader.
The company’s brand has almost become synonymous with electric vehicles, in much the same way Alphabet‘s Google has become synonymous with internet searches.
In the UK, Tesla’s Model 3 is the best-selling plug-in electric vehicle this year. Sales of the car are more than four times higher than its closest competitor.
Demand for the company’s vehicles is so high it is struggling to produce enough. This is a great problem to have. Management is looking to capitalise on this potential over the next few years by increasing production to 20m vehicles by 2030.
This is an ambitious target. It would make the group the largest automotive producer globally. Even if Tesla can increase output to 5m vehicles a year (up from around 750k a year presently), I think the stock has tremendous potential.
As such, I am currently happy to look past the firm’s premium stock market valuation and focus on its growth potential.
What’s more, as the world transitions away from hydrocarbons towards green energy, the demand for its products could be even higher than initial expectations. These are the reasons why I would buy the stock for my portfolio.
Rupert Hargreaves does not own shares in Tesla.
Bearish: Cliff D’Arcy
In years to come, I will remember 2020-21 as the ‘year(s) of the meme stock’. Beaten-down stocks in various companies soared as millions of retail investors teamed up to push prices ‘to the moon’. But easily the biggest meme stock of recent years has to be Tesla. Buying the stock has produced astonishing returns since 2016 (+2,614% in five years). As I write, Tesla trades at $1,023.50, valuing the electric-car maker at over $1trn. But the shares have been even higher, peaking at $1,243.49 on 4 November.
I honestly think Tesla is a fantastic business selling futuristic products. However, TSLA is a joke stock — on fundamentals, at least. In fact, I’d argue that Tesla is one of the most overvalued stocks I’ve ever seen in 35 years of investing. Currently, it trades on a price-to-earnings ratio of 332.1 and an earnings yield of 0.3%, with no dividend yield. Therefore, for Tesla to ‘earn’ its current market value would take until the year 2353. Quite frankly, that’s insane.
Furthermore, the barely profitable Tesla is the fifth-largest US-listed company by market cap. That’s why I would never buy the stock at current price levels. But I wouldn’t be brave enough to short it, either. In summary, it is a meme stock driven by narrative, euphoria and faith. Hence, its fundamentals hardly matter to the faithful. For me, Tesla is quite simply a cult, with Elon Musk as its charismatic leader making endless promises!
Cliff D’Arcy does not own shares in Tesla.
