For those who like sudden shifts in acceleration or deceleration, a Tesla (NASDAQ: TSLA) car can be just the thing. The same applies to the Tesla share price.
Take a look at the price in recent years to see what I mean.
Since April, it is up 134%. In other words, it has comfortably more than doubled.
Still, that April price reflected a 59% fall (well over half) from where it had been just two years previously – and 70% off its 2021 highs.
For a tiny company with a small market capitalisation, such swings would be noteworthy. But Tesla is a massive business, currently commanding a market capitalisation north of a trillion dollars. Swings on this scale defy common investing logic in some ways. Tesla’s underlying business performance has not moved around so wildly during that period.
So, for the share price to double (again) or halve (again), what might need to happen – and what does it mean for my investment choices?
The shares could soar from here
In the short term, the prospect of a more protectionist economic regime in the US could help fuel the Tesla share price, as we have seen.
I have doubts about what that means in the longer term though.
The car supply chain is complex and globalised. Tesla has a massive factory in China that exports cars. A different US policy on import tariffs – and retaliation from other nations that would likely follow – could be bad not good for Tesla’s business, in my view.
But what might jumpstart the shares is ongoing proof of Tesla’s growth opportunities. It remains a massive player in electric cars and I expect those sales to grow. Its power business is growing at speed.
However, those things are well-known and I think they should already be factored in to the current Tesla share price, trading for 91 times earnings. That looks expensive to me: too expensive for me to invest, in fact.
For the share to double from here then, I think we will need to see some very strong evidence of a positive step change in the business. From what is currently in the pipeline, mass production of driverless cars could be such a move.
Again though, that prospect is already widely known. So while it is possible, I do not expect Tesla shares to double in the next couple of years. I could be wrong though: the stock is up 1,413% in five years.
Things could get worse
What about halving?
That might not be as dramatic as it sounds in terms of valuation. Even if Tesla stock halved today, the price-to-earnings ratio would be 45. In my view, that is still high. So I see a valuation-based justification for a much lower price.
As for specific triggers, beyond the tariff regime I mentioned above, a few things concern me. Tesla is no longer the clear market leader in electric cars. Rivals like BYD mean prices are falling, which is likely bad news for Tesla’s profit margins.
Delays in rolling out the automated car plans could hurt sentiment. I also see a risk that, if the US economy does not pick up speed in the way many investors are hoping, leading US shares that have soared in recent years could come crashing back to earth – including Tesla.
