Am I missing out by not buying Tesla shares?

Tesla shares are up 116% since the start of the year. As the business continues to dominate the car market, can investors afford to just sit and watch?

| More on:

Image source: Tesla

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.

It’s hard to think of a company whose shares divide opinion more than Tesla (NASDAQ:TSLA). Bulls say the business has huge potential, but bears say the current share price already reflects this.

This year has very much been one for the bulls – the stock is up 116% since the start of January. So with the S&P 500 up 18% and the FTSE 100 down 1%, are investors like me missing out by not buying Tesla shares?

The bigger picture

Tesla has performed extremely well in 2023. While other stocks have struggled under pressure from rising interest rates, Tesla has posted big gains.

Over the last three years, though, the picture looks quite different. At $234, the Tesla share price is roughly back where it was in December 2020.

The longer-term performance is the most impressive, though. If I’d invested £1,000 in Tesla shares five years ago, I’d have an investment with a market value of £10,787 today.

In other words, while the journey has been bumpy, the general trend for Tesla shares has been up. And this isn’t an accident – the underlying business has achieved some impressive things.

Business performance

Over the last five years, Tesla has been generating some explosive growth. Revenues are up 280% and the business has gone from an operating loss to making almost $14bn in profit.

The financial statements don’t tell the whole story, though. The firm has boosted its manufacturing capacity, established itself as the standard charger for US electric cars, and is working on a supercomputer.

A tough macroeconomic period has put pressure on car manufacturers in general, with demand for EVs falling. But Tesla has arguably been using this to extend its lead over its US rivals. 

Where Ford and General Motors have been scaling back, Tesla has been cutting prices to keep volumes high. This has been weighing on margins, but should boost the company’s long-term competitive position.

Missing out

The business is performing well and analysts at Goldman Sachs and Morgan Stanley think it has much more potential. So is this an opportunity that investors like me can afford to miss out on?

At today’s prices, I don’t think Tesla looks like a good investment simply as a car company. It’s going to need more than this to justify its market cap, whether that’s robotaxis, humanoid robots, or something else.

For me, the issue is that all of this is too uncertain. Exactly when legislation supporting a fleet of robotaxis might get passed and the potential value of a humanoid robot aren’t things I can accurately predict.

That might be due to my own limitations, but that’s the way it is. And as a result, I don’t think I can see a clear path to buying Tesla shares for my portfolio.

Warren Buffett

One of Warren Buffett’s central principles is to always stick to things that are easy to predict. This helps minimise the risk of something unforeseen going wrong. 

This approach comes at a cost. As a result of avoiding uncertainty, the Berkshire Hathaway CEO has missed out on buying Alphabet and Microsoft while others have made big gains.

Nonetheless, the Oracle of Omaha has done perfectly well by sticking to predictable businesses. That’s why I think I can afford to leave Tesla shares, at least for the time being.

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.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Stephen Wright has positions in Berkshire Hathaway and General Motors. The Motley Fool UK has recommended Alphabet, Microsoft, and 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

Investing Articles

Putting £400 aside each month? Here’s how I’d aim for £1.56m in passive income

Many of us save or put money aside each month, but it's what we do with it that counts. Dr…

Read more »

Young Caucasian woman with pink her studying from her laptop screen
Investing Articles

Up 7.6% in a month, is the Scottish Mortgage share price about to surge?

The Scottish Mortgage share price has underperformed since the pandemic. But it remains a hugely exciting stock. Dr James Fox…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

No savings? I’d use these 4 Warren Buffett tips to build significant wealth

If I didn't have any savings, I'd be looking to follow the advice of Warren Buffett. Here's four things I…

Read more »

Hand of a mature man opening a safety deposit box.
Small-Cap Shares

Invest in gold? I think undervalued UK shares could deliver bigger returns

Taking a medium to long-term view, Edward Sheldon reckons small-cap UK shares – which are very cheap right now –…

Read more »

Close-up of British bank notes
Investing Articles

11% dividend yield! 1 FTSE 100 income stock to buy today?

I’m hunting for high dividend yields in the FTSE 100, and this financial institution currently offers the highest payout. Is…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

Should we buy more FTSE 100 shares in December? The stats seem to say yes

The different months of the year should have no effect on where the FTSE 100 goes, should they? The evidence…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

8% yield! Here are the dividend forecasts for Barclays shares for 2024 and 2025

This FTSE 100 bank offers one of the biggest yield on the UK's blue-chip share index. But is it too…

Read more »

Young woman holding up three fingers
Investing Articles

3 reasons why Lloyds’ share price could surge through £1 in 2024!

Optimistic UK investors are buying Lloyds in the hope of a sharp share price rebound. Could the company be a…

Read more »