There is rarely a shortage of news – or opinions – when it comes to electric vehicle maker Tesla (NASDAQ: TSLA). But while there has been a fair bit of doom and gloom around lately when it comes to the firm, Tesla stock is now 75% higher than it was a year ago.
The long-term performance has been even more impressive. Every pound put into Tesla stock five years ago is now worth over a fiver (ignoring exchange rate movements during that period).
So, could this be one to tuck away in my portfolio today and hope for more money-spinning magic in future?
Proven business with big growth opportunities
At the right price, my answer would be an unambiguous yes.
Vehicles are a huge business and likely to stay that way. Over time, I expect electric cars and trucks to form a growing part of that market. Tesla is well-positioned here: it has a vertically integrated manufacturing model already operating at scale, a strong brand, proprietary technology, and large base of existing customers.
However, this market is different to how it was a few years ago. Tesla has lost its pre-eminence, as Chinese rivals including BYD expand at pace both in their home market and overseas. Tesla’s first-quarter sales were sharply lower than last year.
That could reflect some production lines being out of action for part of the period as well as adverse publicity related to Tesla’s chief executive’s political involvement. But a key factor behind the fall – and one I see as a long-term risk – is a more competitive marketplace. That risks eating into profit margins across the industry.
I also see opportunities for Tesla beyond making and selling cars. One is its planned launch of self-driving taxi fleets. Another is the robotics business. On top of that, it already has a sizeable power storage business that is growing very fast.
The trillion dollar question
Given the rise in its stock price over the past year, Tesla is currently sitting on a nice round market capitalization of $1trn.
That is a lot of money. Never mind whether the stock can move higher in future, is it even worth its current price?
I do not think so. The Tesla stock price-to-earnings ratio now sits at a dizzying 176. Ford, by contrast, is on 8 and General Motors on 7.
Tesla’s valuation seems to build in huge expectations for future performance. But as I discussed above, recent signs about the company’s business performance have been alarming, not encouraging.
While power storage is doing well, the core car business has been in reverse. Meanwhile, its competitive environment is becoming more challenging by the month and I do not see that changing.
To me, the current Tesla stock price looks unjustifiably high. So, I shall not be investing.
