It’s hard to think of a company whose shares divide opinion more than Tesla (NASDAQ:TSLA). Bulls say the business has huge potential, but bears say the current share price already reflects this.
This year has very much been one for the bulls – the stock is up 116% since the start of January. So with the S&P 500 up 18% and the FTSE 100 down 1%, are investors like me missing out by not buying Tesla shares?
The bigger picture
Tesla has performed extremely well in 2023. While other stocks have struggled under pressure from rising interest rates, Tesla has posted big gains.
Over the last three years, though, the picture looks quite different. At $234, the Tesla share price is roughly back where it was in December 2020.
The longer-term performance is the most impressive, though. If I’d invested £1,000 in Tesla shares five years ago, I’d have an investment with a market value of £10,787 today.
In other words, while the journey has been bumpy, the general trend for Tesla shares has been up. And this isn’t an accident – the underlying business has achieved some impressive things.
Over the last five years, Tesla has been generating some explosive growth. Revenues are up 280% and the business has gone from an operating loss to making almost $14bn in profit.
The financial statements don’t tell the whole story, though. The firm has boosted its manufacturing capacity, established itself as the standard charger for US electric cars, and is working on a supercomputer.
A tough macroeconomic period has put pressure on car manufacturers in general, with demand for EVs falling. But Tesla has arguably been using this to extend its lead over its US rivals.
Where Ford and General Motors have been scaling back, Tesla has been cutting prices to keep volumes high. This has been weighing on margins, but should boost the company’s long-term competitive position.
The business is performing well and analysts at Goldman Sachs and Morgan Stanley think it has much more potential. So is this an opportunity that investors like me can afford to miss out on?
At today’s prices, I don’t think Tesla looks like a good investment simply as a car company. It’s going to need more than this to justify its market cap, whether that’s robotaxis, humanoid robots, or something else.
For me, the issue is that all of this is too uncertain. Exactly when legislation supporting a fleet of robotaxis might get passed and the potential value of a humanoid robot aren’t things I can accurately predict.
That might be due to my own limitations, but that’s the way it is. And as a result, I don’t think I can see a clear path to buying Tesla shares for my portfolio.
One of Warren Buffett’s central principles is to always stick to things that are easy to predict. This helps minimise the risk of something unforeseen going wrong.
This approach comes at a cost. As a result of avoiding uncertainty, the Berkshire Hathaway CEO has missed out on buying Alphabet and Microsoft while others have made big gains.
Nonetheless, the Oracle of Omaha has done perfectly well by sticking to predictable businesses. That’s why I think I can afford to leave Tesla shares, at least for the time being.