Elon Musk is thrilling and infuriating in equal measure, and the same could be said for Tesla (NASDAQ: TSLA) stock. Over five years, it’s up 688%. Year-to-date it’s down 55%.
I gave up on Tesla when it was showing signs of being a cult rather than an investment opportunity. I’m still wary despite the recent drop. Just because a stock has halved in value, doesn’t mean it won’t halve again.
I thought I’d hate Tesla stock
There’s so much noise around Musk (who may or may not be the world’s richest man right now) that it diverts attention from the underlying business.
For example, Musk’s Twitter takeover has battered Tesla, possibly unfairly. Musk is also spreading himself very thinly, with SpaceX, brain-chip company Neuralink and tunnelling company The Boring Company also in his in-tray. He already works 120 hours a week. Not much room to expand that.
On the other hand, he reckons his everyday input isn’t so essential, arguing that while he continues to oversee both Tesla and SpaceX, “the teams there are so good that often little is needed from me”. At least he seems able to delegate.
Two years ago, in December 2020, Tesla was valued at a staggering 966.7 times earnings. Today’s valuation is far more tempting at ‘just’ 49 times earnings. Yet it’s still expensive for a car maker, with General Motors trading at 5.6 times earnings and Volkswagen at 5.21 times. They’re shifting into the EV market too, which will increase competition for Tesla.
Yet Tesla offers investors things they never will. It’s a pioneer in artificial intelligence, electric batteries, solar panels and roof tiles, robotics, and so on. That broadens the opportunity, but also increases the risk. There will be failures as well as successes. I’m still not convinced that controversial self-driving technology will ever cut it.
China is the issue here
This year, Tesla has been caught in the wider tech sell-off as monetary conditions shift. Covid lockdowns have hit production and sales in the key Chinese market, where Tesla has been forced to cut prices, and may have to cut again. It also faces tough competition from local rival BYD, which is now the world’s biggest electric car maker (and moving into Europe). Yet Covid lockdowns have now been lifted, and sales are climbing again.
Ultimately, what happens in China is far more important than all the noise around Twitter. The company continues to post impressive revenue growth, up 55.95% in the latest quarter to $21.45bn. Full-year revenue was $74.86bn. Five years ago, it was just $10.76bn. Tesla sold a million cars last year. It has just rolled out the Semi, its 18-wheel, long-haul electric freight truck with a 500-mile range. Musk doesn’t stop.
Tesla, like Musk, divides people. It’s a case of choosing your side. You either believe or you don’t. To my surprise, I do still believe. The company has faced a heap of challenges, but has always come out ahead. At today’s reduced valuation, I think it’s a long-term buy for an investor like me who doesn’t mind a bit of risk. I have two stocks ahead of this on my buy list, and won’t have the cash to buy Tesla stock until February. I hope the recovery hasn’t started by then.
