So far in 2023, Tesla (NASDAQ: TSLA) stock has continued to defy the naysayers, rising an astronomical 120%. In fact, in the last week, the shares have climbed over 6%.
This rise primarily came on the back of some positive news for the company. The move upwards, and the stock’s wider performance this year, have got me questioning whether I should be revisiting the idea of adding it to my portfolio.
The first piece of news was India’s potential game-changer for electric vehicle (EV) manufacturers. A report released by Bloomberg suggested that the Indian government might roll out tax breaks for EV manufacturers that export to the country with a view to eventually getting them to manufacture there. While specific details regarding the extent of these breaks remain undisclosed, sources revealed that they could span up to five years. This would be great news for Tesla should they materialise.
Presently, Tesla faces substantial import duties ranging from 70% to 100% of the value of its vehicles in India. In a previous attempt in 2021, the company advocated for a reduction in this rate to 40%, without success.
Later this week India’s trade minister, Piyush Goyal, is visiting San Francisco to attend the Asia-Pacific Economic Cooperation (APEC) Leaders’ Week event. Expectations are high for a potential meeting between Goyal and Tesla’s CEO Elon Musk, to further discuss the import breaks.
The second piece of news is that Tesla recently inked a deal with UK-based petrol station operator EG Group to sell a set of its Superchargers. Unlike traditional branding, these units will carry the evpoint label and operate on an inclusive open network platform, welcoming not only Tesla models but any electric vehicle seeking a recharge.
The terms of the sale remain undisclosed, but investors are seemingly anticipating a positive outcome for the EV manufacturer, considering the upward tick in the stock price.
Thoughts on value
It’s no secret that Tesla shares trade at a huge premium compared to the wider market. Currently the price-to-earnings (P/E) ratio is hovering around the 75 mark. The Nasdaq average is 23, and most good-value stocks trade below 10.
The high valuation has always concerned me, but the stock has continued to defy the odds, consistently providing investors with healthy returns. I believe that Elon Musk is also one of the world’s most impressive CEOs and under his leadership, I think Tesla can achieve great things.
Looking at the recently released Q3 results, its total revenue was 9% higher year on year, but gross profit dropped by 22%. In addition to this, gross profit, operating, and EBITDA margins all fell by over 7%. It seems that the persistent high inflation of the last 18 months is catching up with Tesla, which is bad news and an undeniable risk for investors.
The stock has enjoyed a bump in price this week due to some positive news. However, I remain wary of its volatility and high valuation. For me, this is too hard to ignore. Therefore I won’t be adding any shares to my portfolio today.