Tesla stock is down 40% from its highs. Should I buy it?

Tesla stock has come down a long way in 2022. Edward Sheldon is wondering whether it’s finally time to invest in the electric vehicle company.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Tesla (NASDAQ: TSLA) stock has had quite a pullback recently. Back in November, Tesla’s share price hit $415. Today however, it’s at $249. That represents a decline of approximately 40%.

I’ve had Tesla on my watchlist for years now but I’ve never actually pulled the trigger and bought it. Is it finally time to buy the stock for my portfolio? Let’s discuss.

Three reasons to buy Tesla stock

There’s a lot I like about Tesla.

Firstly, there’s the electric vehicle (EV) growth story. This is still in its early days and Tesla is a market leader. In the most recent quarter, Tesla produced 365,923 EVs and delivered 343,830 of them. These figures are up from 238,000 and 240,000 a year earlier.

Second, there’s its autonomous driving technology, which is very advanced. If I’m honest, this is what really excites me about the stock. If the company can crack ‘Level 5’ driving technology (full automation even in urban environments), the potential is enormous.

Tesla is also making progress in the robot space. Recently, it unveiled its ‘Optimus’ robot at its AI day. This could be another growth driver for the company. Having said that, its technology here appears to be a long way behind that of Boston Dynamics.

Overall, the growth story remains quite exciting.

As for the stock’s valuation, it’s not so crazy any more. Right now, Wall Street expects Tesla to generate earnings per share of $5.85 in 2023. At the current share price, that equates to a forward-looking P/E ratio of about 43. So, it appears that Tesla has grown its high valuation a bit.

Big risks to consider

Having said all that, there are quite a few risks to consider here.

In the near term, the big risk is supply chain issues. These are affecting all manufacturing companies right now, including Tesla. We can see this in the gap between the Q3 production and delivery figures. It’s worth noting that the delivery figure of 343,830 EVs was below Wall Street’s expectations.

Another near-term risk is a weaker consumer. In a recession, people tend to hold off on buying new cars. “While Tesla continues to point to supply constraints as limiting deliveries, the potential for demand destruction looms large,” said JP Morgan analyst Ryan Brinkman earlier this week.

The other major risk is competition. In the EV space, Tesla faces competition from dozens of rivals, including the likes of Ford, GM, BMW, Volvo, and Mercedes Benz. All of these companies are releasing slick new vehicles. Meanwhile, in the autonomous space, Tesla faces competition from Waymo, Cruise, Zoox, and others. So, there’s no guarantee it will be the winner.

Tesla stock: my move now

Weighing all of this up, I’m going to leave Tesla stock on my watchlist for now. I do like the growth story, but I have concerns over the supply chain issues and the spending power of consumers in the near term.

All things considered, I think there are better growth stocks to buy for my portfolio today.

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.

Edward Sheldon 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.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »