Prime minister Harold Wilson famously quipped that “a week is a long time in politics”. The same can be said about Tesla (NASDAQ: TSLA) stock.
Just seven days ago, the share price was $235. Now, it’s up at $272, representing a 15.5% gain. This means that any brave soul who invested £10k in the stock a week ago would now have about £11,550.
Tesla defies logic
Sticking with prime minister theme, let me trot out one last quote (from Winston Churchill): “You will never reach your destination if you stop and throw stones at every dog that barks.”
To me, this sums up Tesla under Elon Musk. From day one, the firm has been surrounded by barking dogs — critics, short-sellers, sniping auto executives, and media sceptics. Even the late Charlie Munger once laid out all the ways that Tesla would fail, according to Musk.
Many said electric vehicles (EVs) would never be fashionable, production was impossible to scale, and that vertical integration couldn’t work with cars. Tesla would inevitably go bankrupt.
They were wrong. Tesla’s current market-cap is a massive $852bn!
However, the stock’s forward price-to-earnings ratio of 103 is sky-high. To many, this valuation doesn’t make any logical sense. But the whole Tesla story so far has essentially defied logic.
Breaking things down
While not official, I think the company can essentially be divided into five parts. There is the automotive segment, which currently accounts for about 74% of revenue and has slowed dramatically.
Last year, Tesla delivered 1.79m vehicles worldwide, a slight decrease from 2023. But reports say that year-to-date sales across most of Europe have fallen off a cliff. So 2024 might be a slog too.
By contrast, Chinese rival BYD is having no such growth problems. Last year, it recorded a 29% rise in revenue to $107bn — higher than Tesla’s $97.7bn!
Second, there’s the energy business, which includes products like solar panels and energy storage for homes and utilities. This rapidly growing segment reported $10bn of revenue last year (67% growth).
Third, there is Full Self-Driving (FSD) software, which still needs supervision from drivers. This currently costs $8,000 for a one-time purchase or $99 a month for a subscription. If robotaxis become viable, this segment could explode as owners upgrade to make passive income from their cars.
Speaking of robotaxis, this is where a lot of the company’s market value (and risk) lies today. Musk envisions a fleet of autonomous taxis, comprising both purpose-built vehicles and privately-owned Teslas integrated into the network.
Tesla bulls predict this is a $1trn+ market opportunity long term, eventually making the automotive and energy storage segments less important.
However, the technology’s unproven and might never scale. Also, large swathes of liberal voters in the US might avoid Tesla robotaxis because of Musk’s outspoken political views.
Finally, there are Optimus robots, which Musk thinks could one day be a $10trn business. Personally, I suspect Chinese competition in the global robotics space will be extremely fierce.
My move
To consider owning Tesla stock, an investor has to be very confident that robotaxis — and probably humanoid robots too — will be slam-dunk successes. While fascinated by both, I’m not sure enough about their success to put my money into them.
But perhaps I’m just being too logical…
