Tesla shares are rising: should I buy now?

Tesla shares have risen almost 20% in the past five days. Dylan Hood takes a look at whether this is a buying opportunity for his portfolio.

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Tesla (NASDAQ: TSLA) shares have had a good week, up 19% over the past five days. The primary driver behind this is the new ‘gigafactory’ which has just been opened in Berlin. While this is good news in the short term, Tesla shares are still down over 16% year-to-date (although they’re up almost 60% over the past year). So, is now the right time for me to be adding the stock to my portfolio? Or should I be steering clear of the world’s biggest EV manufacturer? Let’s take a closer look.  

Reasons to be cheerful

Firstly, as mentioned, the firm has just opened a new plant in Berlin. Tesla has reportedly already hired 3,000 out of the 12,000 expected workers, so things are definitely moving in the right direction. Once the factory is at full capacity, it will be able to produce 500,000 cars annually. To put this into context, Tesla produced 930,422 cars globally in 2021, so the new factory is a huge step forward in ramping up production.

In addition to this, the firm has already been posting some excellent results. In the 2021 Q4 results, revenues reached $15.9bn, rising 71% year-on-year. A 6% rise in margins also allowed profits to rise to $4.8bn, up 118% from the same period in 2020. Tesla is also flush with over $5bn in cash and negligible debts.

Tesla shares valuation

One concern I have always had about Tesla shares is their overvaluation. The stock currently has a price-to-earnings ratio of 204. Most good-value stocks operate with P/E ratios of under 10! In addition to this, Tesla’s competitors General Motors and Toyota trade on P/E ratios of 6.5 and 9.5, respectively.

Headwinds for Tesla shares

One big risk I see for Tesla shares is the threat of rising inflation and interest rates. Both are creeping up across the globe, with the UK and US central banks both hiking rates in the last week. The problem for Tesla is that when rates rise, investors tend to pull their money out of high-growth stocks, as they can generate higher returns from safer assets. This factor could stunt the future growth of Tesla shares.

In addition to this, supply chain shortages have been causing havoc across the EV industry. These shortages have been amplified by the covid-19 pandemic. Tesla released a statement in their Q4 report explaining that “factories have been running below capacity for several quarters as supply chain became the main limiting factor, which is likely to continue through 2022”. This could be a big factor that could hold the shares back from future growth.

What I’m doing now

Overall, I think Tesla is a great company. However, in my opinion, the shares are vastly overvalued and have been since mid-2020. While I don’t think this will change anytime soon, it doesn’t mean the shares won’t continue to rise. That being said, the threats above could stunt growth. For these reasons, I won’t be adding Tesla shares to my portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK 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.

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