Tesla (NASDAQ:TSLA) shares have generated a lot of interest over the past couple of years. The electric car manufacturer has seen the price trade from $60 at the start of 2019 to $780 as I write. You can easily see this is over a tenfold return in a relatively short period of time.
Tesla has grown its reach to be a truly global company. But it currently only has one listing, on the NASDAQ in the US. For a UK investor like myself, sitting in London, what do I need to know before getting involved?
As a UK investor, the most traditional way to buy the stock is through my broker or investment platform. Although I’ll have to fill out a little bit of paperwork if I buy US stocks, I can hold them within my Stocks and Shares ISA. This way, I can hold the stock without leveraging myself up, and can hold the stock as long as I want to.
I can also benefit from the gains being free from capital gains tax if I keep it within the ISA and eventually sell for a profit. This is a particular benefit that UK investors are able to access.
Should I buy Tesla shares now?
This is probably the bigger of the two questions. I know I can buy if I want to, but that doesn’t mean that I should. Tesla is something of an enigma as it has an incredibly powerful brand, led by the charismatic and outspoken Elon Musk. It’s also one of the main stocks that has fuelled a huge increase in retail investors coming into the market.
The reason I’m mentioning this first is that all of these inputs have pushed Tesla shares higher and higher. Does it have the fundamentals to back up the valuation of almost $750bn? Recent Q4 2020 results showed net income at $240m. This is definitely a positive, as for many quarters (and years) it’s been heavily loss-making. For example, during 2017 it lost in excess of $240m each quarter. Yet a valuation of that size based on a relatively small profit shows that investors are looking much further down the line.
Tesla also delivered 499,550 cars during 2020. Let’s compare this to another car company. General Motors delivered 2.88m cars during 2019. It has a share price of $51 and a market capitalisation of just under $75bn. So Tesla is assumed by the market to be worth 10 times that of General Motors. Yet General Motors produces many more cars than Tesla.
In my opinion, this disparity from fundamental value is the main reason I wouldn’t invest in Tesla shares at the current price. Don’t get me wrong, I think electric cars are the future. I think Tesla is a well run company that is finally turning the corner and making a profit. But unless Tesla shares fall to a more reasonable level, I can’t justify buying in.
jonathansmith1 has no position in any of the shares 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.