The Tesla (NASDAQ: TSLA) share price has plunged this week. The stock started a fall after the company announced it had deployed $1.5bn into Bitcoin. It seems investors disagree with this bet at this point.
However, here at The Motley Fool, we’re not interested in what stock prices do on a day-to-day basis. We’re long-term investors. This means we look at the company’s long-term potential and try and decide if the stock is worth buying today, based on what the business could be worth five or 10 years from now.
We also know the past performance of a stock is no guarantee of future potential. Just because the Tesla share price has outperformed the market over the past five years doesn’t mean it’ll continue to do so.
The outlook for the Tesla share price
I’m incredibly optimistic about the outlook for Tesla in the long term. The company has revolutionised the electric vehicle market over the past 10 years. Before Tesla came onto the scene, electric vehicles were not something anyone wanted to own. The best model on the market was the G-Wiz. This car has been voted the worst car in history by Auto Express.
Tesla showed that electric vehicles could be fast, fun and incredibly stylish. As sales boomed, other car manufacturers have rushed to get in on the action. As a result, there’s now a massive range of electric vehicles on the market. Consumers are almost spoilt for choice.
And the market is only really just getting started. Last year, Volkswagen raised its planned investment in digital and electric vehicle technologies to $86bn over the next five years. That’s just one company.
Unfortunately, while Tesla revolutionised the market for electric vehicles, it now risks falling behind. However, the group has unveiled plans to release several new models in the future. These should help it maintain its position in the market.
And as the world continues to transition away from the internal combustion engine, I think the demand for the company’s vehicles will only increase. That’s why I’m optimistic about the organisation’s future in the long term, although my view on the Tesla share price is a little different.
Tesla faces many risks. This includes being outmanoeuvred by the larger car manufacturers. The company has also struggled to generate a profit consistently. It has also had to recall over 100,000 vehicles due to manufacturing issues. This recall could have a significant impact on the customer perception of the business.
Then there’s the valuation of the Tesla share price. At the time of writing, the stock has a market capitalisation of $685bn. That’s six times higher than peer Volkswagen. I think it isn’t easy to justify this premium valuation, even considering the company’s long-term potential.
As such, while I think Tesla has a bright future, I’m worried about the company’s valuation. Therefore, I wouldn’t buy the stock from my portfolio today. If the valuation drops to a more appropriate level however, I may revisit the opportunity.
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.