Tesla (NASDAQ: TSLA) shares have surged in value this year. The stock has jumped nearly 600% year-to-date catapulting the company’s founder and one of its largest shareholders, Elon Musk, into the ranks of the world’s richest.
Following this performance, it’s not surprising that many investors, including yours truly, have shown an interest in buying the stock. But do the shares still have room to run after their already staggering performance in 2020? That’s what I want to find out.
Tesla shares: Time to buy?
I’ve always found it quite difficult to value this car producer. There’s no doubt in my mind that the company has revolutionised the automotive industry. Its progress in creating affordable, high performance, long-range electric cars has forced its peers to invest tens of billions of dollars in catching up.
The company launched its first car in 2008 when the number of electric vehicles on the market overall could be counted on one hand. Since then, the sector has exploded.
In the first quarter of next year alone, 15 new electric vehicles are slated to hit the market.
However, despite the firm’s revolutionary qualities, it has consistently struggled to earn a profit. There have also been issues with quality, and the group has had to recall several thousand vehicles for problems. Then there are Tesla’s legal problems. Several high profile cases against the company have been to court over the past few years.
Nevertheless, despite these issues, Tesla shares have continued to defy gravity. As such, I have mixed emotions about the business. Yes, it has changed the world, but its lack of profits and legal battles make it difficult for me to get behind the firm as an investor.
Considering all of the above, rather than buying Tesla shares directly, I think I’d prefer to own the Scottish Mortgage Investment Trust (LSE: SMT). This is one of the carmaker’s largest shareholders, so investors have plenty of exposure to the stock. However, the investment accounts for around 10% of the overall portfolio. The rest is comprised of other high-growth tech stocks, both in the US and China. There’s also a small portfolio of private businesses.
I reckon this provides the best of both worlds. One can gain exposure to Tesla shares without taking on too much risk. I’d rather own a well-run investment trust that I can understand. If Scottish Mortgage’s managers know something about the company that I don’t, then that’s fine. If the automaker turns out to be a bad investment in the long run, then that’s also fine, the diversification provided by the rest of the investment trust’s portfolio will provide a cushion against unforeseen losses.
So overall, while I am cautiously optimistic about the outlook for Tesla shares, for the reasons outlined above, I’d rather own Scottish Mortgage instead.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of and has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.