It has been a roller-coaster ride for shareholders in Tesla (NASDAQ: TSLA). When? Take your pick! Tesla stock has soared 43% since late April alone. It is up 66% in a year and 413% in five years.
But there have been some dizzying drops too. Even after its recent rise, the share price is a quarter below where it stood in December.
Clearly, owning Tesla is not for the faint-hearted. But, as the share price has demonstrated over the long term, risks can sometimes come hand in hand with brilliant returns.
So at its current price, could Tesla be a bargain for me to add to my portfolio?
Yes, no, maybe…
Only time will tell. A bargain is something that has been bought for less – ideally a lot less – than it turns out to be worth.
There are two elements to that. One – what Tesla stock would cost me now – is crystal clear, not just to me but to everyone in the market.
The second element – what it is actually worth – is far, far harder to gauge.
Some shares actually trade for less than a sum of the parts. For example, Scottish Mortgage Investment Trust (itself a long-term Tesla shareholder) sells at a discount of around 10% to its net asset value.
By contrast, at the end of the first quarter, Tesla’s net asset value was well under 10% of its current market capitalisation. On that basis, the Tesla stock price certainly does not look like a bargain.
However, that is only one way of valuing a company.
Looking to the future
A different approach than a hard, cold look at the balance sheet as it stands today is to consider what value those assets might help the company create for shareholders in future.
I think it is fair to say this is how many investors have long valued Tesla stock. It has proven adept at growing sales and turning losses into profits over time. That is thanks to assets it still has, including its brand, proprietary technology, a vertically integrated manufacturing and marketing model, and some very talented employees.
They could help propel the company even further in future.
It has ambitions in high-potential, fast-growing business areas including artificial intelligence (AI) and robotics. It also has ambitions to expand into both trucks and self-driving taxis at a commercial scale.
If it can do well enough even in just some of those areas, while performing solidly in its existing business, today’s Tesla stock price may yet come to be seen as a bargain.
I’m not ready to invest
However, while the potential reward part of that storyline attracts me, the actual risks do not.
For one thing, a lot of the potential businesses are little more than that. Tesla has yet to prove it can roll them out at scale, let alone profitably.
Meanwhile, the base business is struggling. Tesla’s power generation unit has been performing strongly and has ongoing growth potential. But the car business saw sales fall slightly last year, while in the first quarter of this year, they slumped.
In a highly competitive electric vehicle (EV) market, there is a risk of a permanent shift. Meanwhile, competition could squeeze profit margins.
I do not think the current Tesla stock price adequately reflects such risks, so I will not be investing.
