The pandemic was a funny time for Tesla (LSE: TSLA). The spread of Covid caused big problems for other companies, but the car manufacturer completely bucked the trend. It turned its first profit in 2020 then the share price began to skyrocket.
Tesla quickly became the world’s largest car manufacturer and only the sixth company to ever pass a $1trn market value.
All in all, the stock has been one of the best investments of the last few years. In this article, I’d like to look at just how good those returns were and whether I think it’s still a good buy today.
If I’d invested £5k in Tesla stock in March 2020, I’d have £40,911 today. This is in a little over three years too. I’d have to call that a terrific return.
It looks even better in comparison. The FTSE 100 fell during the pandemic and had a decent recovery. But it only grew 41% compared to Tesla’s 718% growth.
Ok, UK stocks have been a bit of a damp squib lately, so what about US stocks? Well, the S&P 500 is up around 89%. That’s pretty good for only three years, but nothing compared to what a stake in Elon Musk’s firm would have generated.
Yet Tesla is still some way off its all-time high. That was $407 back in 2021, compared to $233 today. A drop that big is the first sign that there might be some value here. So, the next question is: do I think it’s a buy?
A huge lead
Let’s start with the bull case. Firstly, Tesla has a huge lead on its competitors. In simple terms, it makes tonnes more profit on its electric vehicles (EV) than anyone else.
Ford makes around $2,200 on each car it sells. That’s normal for the industry, outside of a few luxury manufacturers. Tesla, on the other hand, makes $9,600. That’s over four times the profit on every single car.
If we look at EV-only manufacturers, it gets even worse. Other big names in the space like Nio and Rivian haven’t even turned a profit yet. It’s hard to overstate just what a lead Tesla already has on the rest of the market.
This advantage is turning into market share too. Tesla has around 65% of the total EV market share worldwide. That’s an astonishing figure. It’s likely to come down, of course, but puts the firm in a very good place when we think about the future of the industry.
A bright future?
A golden future does look like it’s already in the price however. The firm trades at 58 times forward earnings. That’s very expensive, the price of a disruptive tech start-up rather than a car company. In fact, it’s even higher than Nvidia is right now.
The price-to-earnings-to-growth (PEG) ratio can help us here. This takes into account how fast a firm is growing, and whether it justifies its high price. Around 1 is usually considered fair, and Tesla is at around 1.28. So it looks a little overpriced on this metric.
Putting it together, I’d say we’re looking at a good company with expensive shares. I bought in a few months ago when it was cheaper, and I’m happy that I did. I’m not sure I would now though.