Tesla (NASDAQ: TSLA) has been a very lucrative shareholding for some investors over the past few years. But I do not own any Tesla stock.
Could it perhaps be a good idea for me to buy some now and tuck it away in my ISA for the long term?
One way to think about investing
The billionaire investor Warren Buffett takes a long-term approach to investment, the same as I do.
He has often talked about his investment style as being based on trying to buy into great companies at an attractive price, then hanging onto the shares for the long term.
Lots of positive aspects to Tesla
So, is Tesla a great company?
It has no shortage of people ready to knock it. But the reality is that Tesla has performed an incredible feat.
In little over a couple of decades, it has built up a huge car business with both manufacturing and sales spanning the globe.
2024 revenues came close to $100bn. The company also reported a multibillion dollar net profit, for the fourth year in a row.
Tesla has built a strong brand, developed proprietary technology, and proven it can make money selling electric vehicles at scale.
A bumpy road of late
Can that continue? After all, last year Tesla’s sales volumes fell for the second year in a row.
A tough competitive environment, reduced US buyer subsidies, and shifting public perceptions of Tesla’s boss all pose risks both to revenues and profits.
However, I still see a lot to like about the business. With the right management choices, I think it can benefit from ongoing demand for electric vehicles.
On top of that, Tesla’s energy generation and storage business also catches my eye. It is already sizeable and continues to grow. I see substantial growth opportunities for it in the coming decade.
What about other opportunities? Tesla has talked about its ambitions in self-driving taxis and robotics, for example.
For now, those seem more like ideas than actual businesses to me. Tesla has yet to prove it has a profitable business model at scale for either of those areas.
So, while they add some spice to the Tesla investment case, at the moment they do not much affect my view of what the stock is worth.
Looking for an attractive price
That brings me onto the question of whether, having decided that Tesla is a great business, it also has an attractive stock price.
Here my opinion is a firm ‘no’.
With its $1.4trn market capitalization, Tesla stock sells for 293 times earnings. That seems ludicrously expensive to me.
For me to buy Tesla stock, it would have to trade on a price-to-earnings ratio I found attractive.
Would that be 16 (like General Motors) or 19 (like electric vehicle rival BYD)?
I have some flexibility on what I would consider an attractive price, based on an assessment of Tesla’s risks and commercial outlook at any given moment.
But what I can say for sure is that 293 is far too high for my tastes!
