Investors who bought Tesla (NASDAQ:TSLA) stock in March 2021 have had a very nice return on their money. It’s up 69%, which is enough to turn a £1,000 investment into £1,692.
That’s not a bad result by any means – it’s far better than what someone could have made by leaving money in cash. But there are a couple of things investors need to note.
Returns
Investing is about owning shares in a company and earning a return from the cash the business makes. But that isn’t what’s happened with Tesla shares recently.
Over the last five years, Tesla has generated a total of $12.67 in earnings per share (EPS). With the stock trading at $231 in March 2021, that implies only a 5.5% return.
Source: Fiscal.ai
In other words, shareholders have done well because investors have been bidding up the stock rather than as a result of huge EPS growth.
The firm made $1.63 in 2021 and $1.08 in 2025. That makes the stock trading 69% above where it was five years ago look unjustified – but that might not be the case.
Opportunity cost
As a company, Tesla isn’t really about incremental gains. It’s focused on big initiatives – autonomous vehicles and humanoid robots – that have huge potential, but aren’t profitable yet.
From a valuation perspective, it matters how long it’s going to be until those projects fulfil their potential. While investors wait, their money could be earning a return elsewhere.
That means the sooner Tesla achieves its ambitions, the more the stock is worth today. And on the – big – assumption the firm will get there eventually, it has to be closer than it was in 2021.
As a result, the share price going up over the last five years might not be entirely unjustified. As the company’s projects get closer to reality, the opportunity cost of waiting goes down.
Any day now…
Tesla shares obviously trade at high multiples, but the company’s shareholders aren’t focusing on what’s been happening – they’re focusing on what’s to come. And rightly so.
For the stock to stay where it is, management needs to convince investors that the grand plans are progressing. Importantly, it probably also needs to get them to think that they’re not far off.
Tesla doesn’t have a great track record when it comes to timelines for new projects. Elon Musk has admitted as much and this makes reassuring investors a challenge.
There have been signs of positive sales growth in both China and Europe recently. But while this is a good thing, investors who own the stock at today’s prices aren’t just in it for the cars.
High-risk, high-reward?
Tesla isn’t the type of company that’s likely to grow consistently at 15% a year for the next decade. It’s also not the type of business that’s going to pay a reliable dividend any time soon.
Anyone who wants those types of investment should think about looking elsewhere – which is what I’m doing. But that doesn’t mean the stock isn’t worth the attention of some investors.
If Tesla one day achieves its stated ambitions, nobody’s going to care that EPS in 2025 was lower than 2024. And if that day is coming at some point in the future, it’s only getting closer.
