Tesla (NASDAQ: TSLA) stock’s up over 130% in five years. And it’s climbed more than 40% in the past 12 months. But a few aspects of the stock’s journey make me a bit twitchy.
It’s been very volatile, dipping around 35% since a 52-week peak in December. And that’s after a more recent rebound — it was down 55% in April.
There’s been a bit of a Nasdaq sell-off recently. But it’s nothing compared to Tesla’s ups and downs. Which direction it might go next seems like little more than a coin toss.
Valuation, valuation
Perhaps the scariest thing about Tesla stock is that forecasts put it on a price-to-earnings (P/E) ratio of 236. By comparison, even after a hot spell, the S&P 500 index is still at just under 30.
Now, that might be fine. I’ve seen stocks on much higher valuations going on to justify them and create cracking shareholder returns. But right now, my big question is — which part of Tesla’s business can justify it?
Can electric vehicle (EV) sales do the trick? Tesla’s sales around the globe have been declining — partly as a result of negativity towards CEO Elon Musk. Analysts do expect them to rebound though, particularly when more affordable vehicles start to become mainstream.
Tesla’s biggest rival, Chinese EV maker BYD, has taken the top spot in worldwide sales. Yet it’s on a modest forward P/E of just 17, in line with the likes of Ford and Honda. Nope, I really can’t see it being the cars.
Robotaxi
Tesla’s robotaxi has created excitement. It’s why Cathie Wood of Ark Invest fame put a $2,600 price target on the stock for 2029. It’s about $320 at the time of writing. That’s based on Monte Carlo ‘what if?’ modelling using variables that are near-impossible to predict, so it’s a game theory guess. Critically, it assumes nearly 90% of Tesla’s valuation would be down to its robotaxi business at that valuation.
But it’s off to a very slow start. The much-delayed launch ended up looking little more than a token demonstration, involving only a small number of invited customers. So far, Tesla has over-promised and under-delivered on its self-driving technologies.
With competitors making leaps while Tesla has been stumbling, I think we’d need to see a rapid acceleration of this sector to come close to justifying today’s stock valuation.
The future
What it comes down to, it seems to me, is all the new artificial intelligence (AI)-based goodies Tesla’s going to come up with in the future. And with an impressive foundation in battery technology, robotics and AI, I do think there could be some seriously exciting developments. Those taking the risk today might do well — and Wood would be welcome to laugh at me.
But I see it as too much of a ‘jam tomorrow’ investment, based too much on trying to guess what Musk might do next. And it could go either way in the next few months, never mind five years.
I won’t consider buying Tesla until we at least have a clearer idea of the jam flavour and when tomorrow might be.
