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Is now the right time for me to buy Tesla shares?

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Tesla
Image source: Tesla

Tesla (NASDAQ: TSLA) shares are one of the most controversial investments on the market today.

The electric vehicle (EV) company has revolutionised the car market around the world. It showed traditional carmakers how easy it was to make EVs that were both comfortable, efficient and practical.

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What’s more, over the past few years, a range of new entrants have arrived in the market. This is both a blessing and a curse for the company.

On the one hand, as more and more money is invested in EVs, the infrastructure required to support these vehicles is growing. This is helping consumers make the switch, and as one of the largest manufacturers in the market, many consumers are turning to Tesla.

However, at the same time, the company is facing increasing competition. Not just from new entrants but also from traditional manufacturers such as Volkswagen and Ford

Delivery targets 

Despite its attractive qualities, its controversial CEO, Elon Musk, has put some investors off Tesla shares. The firm has also been criticised for its shoddy construction quality, high executive pay and poor treatment of workers. 

Still, these criticisms don’t seem to have put off customers. Tesla produced and delivered more than 200,000 electric cars in the second quarter of 2021. That was a record for the group. Of these, almost 99% were the company’s cheaper Model 3 and Model Y cars. 

These delivery figures suggest the company is on track to outperform its 2020 delivery target significantly. Tesla barely missed its calendar 2020 delivery target of 500,000 but in the first six months of 2021, it’s already delivered nearly 80% of that figure.

Considering all of the above, I think Tesla shares look attractive. The company seems to be outperforming and, despite the pandemic and other operational problems, sales are growing. 

Valuing Tesla shares

The big problem is trying to put a value on the business. Right now, the company is one of the most expensive stocks in the S&P 500. I think this valuation is difficult to justify, especially considering the firm’s financials. It reported a minuscule net profit of $721m last year, compared to its market capitalisation of $673bn. 

If the company can continue to outperform expectations, I think it can justify this valuation. But its outperformance isn’t guaranteed. 

As such, I’m wary about buying Tesla shares of current levels. I think the company has enormous potential. However, the valuation concerns me. 

Therefore, I’d only buy a speculative position in the business for my portfolio today. If the company can continue to grow and maintain its position as one of the world’s premier EV manufacturers, its current valuation may turn out to be conservative.

Unfortunately, if growth slows, investors may discover there are better options to be had elsewhere and quickly move away from the business.

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Rupert Hargreaves 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.

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