It’s been less than three months since the start of the year (although it may seem longer!). However, during that time, Tesla (NASDAQ: TSLA ) fell by about a fifth. Buying Tesla stock is now 19% cheaper than at the start of the year.
Should I do so?
A business with proven long-term performance
It’s easy not to be surprised that Tesla’s stock is falling, as the company has had many challenges in recent years – and I’ll get to that in a second.
But the truth is, even after the recent stock price slide, Tesla’s long-term performance has been good.
Tesla stock is up 34% in the past year alone. That’s well above the 13% gain seen in S&P 500 index at that time.
In five years, Tesla is up 78%.
For someone who bought Tesla stock when it went public in 2010, the return has been even better: an incredible feat. 28,638%.
Now, it goes without saying that past performance is never a guide to what to expect in the future.
But since there’s no shortage of people willing to give a critical opinion on Tesla’s investment case, I think it’s worth remembering that the company, which currently commands a market capitalization of $1.1trn, has been responsible for creating critical value.
Tesla is at a crossroads
Why, then, has Tesla’s stock fallen recently?
As I see it, the decline reflects uncertainty about where the company might go from here.
Another way to value it is based on its current business. Although it has a well-performing power generation and storage business, Tesla’s bread and butter is its automotive business.
Its car sales figures have fallen for two years in a row. By removing other models from their already limited lineup, I think they may lose some potential sales.
Meanwhile, competitors like BYD they have been participating in many markets (now it is Tesla worldwide). The end of key tax credits in the US has badly changed the economics of Tesla’s car business.
Putting all that together, I don’t see any justification for the market cap or anything shut up at $1.1trn.
Apparently, however, some investors do, hence the current market capitalization. Instead of focusing on the existing business, their investment case is about the road ahead.
There’s a lot to prove – and there’s no guarantee of success
That road ahead feels like it’s full of energy, from self-driving taxis to traffic lights.
Tesla’s history has shown that it can bring new technology to market at scale in a short period of time. Add to that other existing capabilities, from autonomous driving software to manufacturing, and Tesla clearly has a strong chance of doing well in such emerging fields.
But – most importantly, in my opinion – so do other companies. Many other companies.
In fact, many firms have already made great strides, both in self-driving cars (BYD is one of them) and robots.
Tesla’s ambitions at this point are still very small. They are far from commercial scale – and may never get there.
Even after the stock price plunge, however, Tesla appears to be priced for great success. I think it’s too valuable, so it won’t invest.
Fortunately, there are some tech stocks that I think currently offer the best possible value…
