Tesla (NASDAQ: TSLA) stock has spiked in the past few weeks, pushing it up nearly 75% over the past 12 months.
Prior to that, the electric car pioneer had been having a few tough years. And the price has only just regained its 2022 levels.
It does seem to coincide with Elon Musk being good mates with US President-elect Donald Trump and lining up a plum job in the new administration. But surely there’s more to it than that.
Sky-high valuation
The soaring Tesla price has pushed the forward price-to-earnings (P/E) ratio as high as 200 for the current year. Forecasts have it dropping to 116 by 2026, but it’s still by far the biggest in the so-called Magnificent Seven group of tech/AI-powered stocks.
The second biggest P/E of the bunch belongs to Nvidia, and that comes in at a relatively lowly 47. That’s less than a quarter of Tesla’s.
Still, some of today’s Nasdaq high-flyers were on super-high P/E multiples in the past. In its earlier days, the Amazon P/E was well up into the hundreds. And that was with the stock at far lower prices than today.
So a very high P/E in itself might not be a bad sign. But Tesla’s, compared with the other big six, would make me a bit nervous if I owned any.
Handed a boost
Recent news has given Tesla a boost in one of its key future markets, robotaxis. General Motors has just pulled the plug on its Cruise robotaxi subsidiary, citing rising costs amid growing competiton. GM reckons the move should save it $1bn a year.
But it does reduce the competition for Tesla a bit. It’s still up against Waymo (aka the Google Self-Driving Car Project), with the financial might of Alphabet behind it.
It’s worth remembering that the expected growth of the robotaxi market lies behind Cathie Wood’s sky-high forecasts for Tesla. Earlier this year, she famously put a five-year price target of $2,600 on the stock, though few investors take that seriously.
And her Ark Innovation fund has just sold some Tesla, albeit a small portion of its holding.
Earnings
In its last quarter, Tesla’s revenue was up only about 8% year on year, which isn’t the kind of rapid growth we might hope for. The figures did beat expectations, but only after failing to hit them in the previous three quarters.
One thing that I think a good few investors might have missed is that the self-driving vehicle market faces a forest of regulations. But we don’t yet know what Musk’s buddy in the White House might do about that.
Not just cars
Tesla enthusiasts are quick to point out that it’s more than just a car maker. Batteries and renewable energy, robotics and AI all form part of the picture, as do Tesla’s ambituous international expansion plans.
And who knows, today’s high valuation might turn out to be cheap, as Amazon’s was so long ago. The thing is, nobody knows if it’s a bubble stock or a long-term winner. But the uncertainty rules out Tesla for me, and I won’t be buying.
