Elon Musk, the owner of Tesla, has been making waves lately, specifically regarding his recent acquisition of Twitter. But, is Tesla a buy?
A few finance and tech experts weigh in to let us know what they think about picking up some shares of Tesla.
Max Shak from SurvivalGearShack.com says:
“It’s hard to know what you’re looking for in an investment without a better understanding of your goals.
Do you care more about making money on the investment or about making the air we breathe cleaner? Do you see Tesla as having growth potential, a technology play, or as a play in the auto industry?
From a business standpoint, Tesla isn’t making a lot of money, so it’s not the best investment. In spite of that, Tesla is doing things against the masses who want to see them fail, revolutionizing an industry that has been resistant to change and slow to adopt new technologies.
Although Tesla is often overlooked for its solar and battery divisions, the company is a lot more than cars. A few days ago, I read an analyst’s comment about Tesla (which I knew who it was).
‘As Tesla, the energy company, was searching for buyers for its batteries’, he said. ‘The company started an auto company when it developed a product that no one was purchasing. Today, that auto company is the largest buyer for the energy division.’
VW, Toyota, and GM still have lots of work to do to catch up with Tesla, and they may end up even having to purchase batteries from Tesla if they suddenly abandon liquid fuel engines (diesel, gasoline, hydrogen).
Are those factors good reasons to invest now? It really comes down to what you think is right or wrong based on your own opinion.
One thing is for sure, whether you love it or hate it. In the years to come, Tesla will be a name to remember. Society, however, does not always reward the first to offer a solution with long-term success. In terms of computer knowledge, Novel built a better product (at the time) than Microsoft.
In spite of this, Windows won the battle for file servers (and many believe EMC now owns the market). Search engine wars were once dominated by Yahoo and MSN on the Internet.
These two companies now appear so small that one wonders why they even exist. Tesla has room to grow in the electric vehicle market, and many feel the company and the major automakers can work together.
Do you think Tesla will still be here in a decade? Many articles that said ‘No’ 10 years ago can still be found today, and they will still say the same thing 10 years from now.
The sales of Tesla’s cars will eventually stagnate. The car industry also saw sales decline, just as horse-drawn carriages did. Maybe we will all have flying cars in 10 years (or maybe we already do – Helicopters are the flying cars).”
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Tesla is an Industry Leader
Harry Turner from The Sovereign Investor says:
“Yes, Tesla is a good long-term buy.
Not only are you purchasing the market leader in EVs, but you are also getting exposure to the rest of the green energy ecosystem (solar panels, batteries), as well as the software capabilities to integrate it all together. It is this latter point that most people miss about Tesla.
Chamath Palihapitiya was the first to call Tesla a “distributed energy company”, which is a much more accurate depiction than calling it an auto company.
If you believe solar is the future, then you have to assume more solar panels will be installed on homes, as well as batteries for storage. Tesla excels in both these areas.
And whilst that sounds easy to replicate, don’t forget they have to work on the same system. Tesla’s expertise in software gives it a strong competitive advantage here.
The upshot is that Tesla has the potential to create a platform/ecosystem business, in a similar way that Apple has done so with its hardware and software (iOS) integration. Just as you purchase AirPods because you have an iPhone, you will likely purchase a Tesla because it integrates with your home energy architecture.
Tesla clearly has a first-mover advantage in this space, which means it stands to benefit from network effects and economies of scale. Of course, this is far in the future, but something the consensus always fails to address when analyzing the long-term prospects of Tesla.
Comparing its valuation to other car companies is futile. Tesla has completely disrupted the auto industry and changed the game. There is going to be more consolidation in the auto industry because car companies need the technology, and technology companies need the cars. Only the best will survive.”
Tesla Could Be a Good Long-Term Buy
Max Benz, founder and CEO at BankingGeek, tells us:
“Many investors are wondering if Tesla stock is a buy. The electric car company has been in the news recently for both its innovative products and its financial troubles.
Tesla has faced production delays for its new Model 3 sedan, and it is still struggling to turn a profit. However, Tesla’s share price has more than doubled over the past year, and many analysts believe that the company has strong long-term growth potential.
Given these factors, I believe that Tesla stock is a buy.
The company’s products are at the forefront of the electric vehicle revolution, and Tesla has already established itself as a leader in this rapidly growing industry.
I believe that Tesla will eventually overcome its production challenges, and that the company’s share price will continue to rise in the years to come.”
But… Tesla Cars are Not Very Affordable
Justin Furniel from PushAndProfit.com says:
“The question I think is better to ask is if Tesla is a buy at these valuations. I believe Tesla to be a phenomenal company with great fundamentals showing growth.
The problem I have for Tesla is that unless Tesla makes a cheaper model or can deliver on their robo taxis I don’t see them as too great of a long-term investment at those levels.
The reason being is that at the end of the day Tesla vehicles are luxury cars, and the revenue that a luxury car business can bring will eventually cap. Even if Tesla can produce millions of cars a year with their new Giga factories, at the end of the day you still need individuals to buy it.
And while demand is high eventually, the demand will dwindle down. According to Google the average price of a car is $47,000 however the average is typically referring to the mean, and what we need to look at is the median price.
For example, a new 2022 Honda Accord is going for roughly $22,000. This is the price range most Americans can afford. Although the model 3 is the most inexpensive option in the Tesla fleet it still isn’t affordable to most Americans.
So until Tesla can start producing a cheaper model or, introduce the robo taxis I don’t believe Tesla at these levels are worth it as they are still in the luxury car industry. I think once the price action settles down buying Tesla for the long term will turn out to be a great investment, just not at these prices for the time being.”
And Some Don’t Think Tesla is a Good Buy at All
Robert R. Johnson PhD, CFA, CAIA Professor, Heider College of Business, Creighton University says:
“No. Tesla is not a good buy for the long term. The bull case for Tesla is predicated on a narrative of Elon Musk being a genius and electric vehicles being the future of transportation.
The bottom line is that many investors are swayed by stories and ignore fundamentals. Nobel prize laureate Robert Shiller explained this phenomenon in a book entitled Narrative Economics: How Stories Go Viral & Drive Major Economic Events.
Shiller shows how popular stories — narratives — can drive the decisions of individuals and create market inefficiencies. Students of economics are taught that individuals are rational decision-makers, yet we witness economic booms and busts that can’t be explained by supposedly rational behaviors.
One need looks no further than the current bubble in cryptocurrencies or the housing bubble that precipitated the financial crisis to see how seemingly irrational narratives can drive behavior and create economic crises.
Investors would be wise to take Shiller’s advice and consider the narrative. This is how investors become speculators and how speculation is akin to gambling.
Any investment in Tesla at the current valuation is purely speculative, in my opinion. The company’s fundamentals simply don’t justify the atmospheric valuation of the stock. The future of electric cars is the biggest issue going forward with auto stocks.
While electric cars and driverless vehicles appear to be the future of the automobile industry, renowned baseball philosopher Yogi Berra once said ‘It’s tough to make predictions, especially about the future.’
Many investors are currently betting that Tesla will be the big winner in the electric car sweepstakes. In fact, Tesla is really sucking all of the air out of the automobile industry from an investor’s standpoint.
Given all of the attendant problems with Tesla management, its huge debt load, and atmospheric valuation, I believe that a much more prudent investment is GM or Ford at forward PEs of 6 and 7 times, respectively, rather than Tesla at a forward PE of 76 times.
Investors committing funds to Ford and GM have a much higher margin of safety than those in Tesla. And, they also have solid corporate governance and management teams in place, unlike Tesla (we have all seen some of the emotionally unintelligent decisions that Mr. Musk has made in the past).
But, Tesla isn’t even the most absurd story in the EV space. That belongs to Nikola. You can’t value Nikola on any fundamental metrics as not only doesn’t it have earnings, it hardly even has sales.
Tesla is hugely speculative. But, that doesn’t mean that investors can’t make money buying Tesla at these valuation levels. While I wouldn’t bet on Tesla at these valuation levels, I wouldn’t bet against the firm either.
Iconic economist John Maynard Keynes famously said, ‘The stock market can remain irrational longer than you can remain solvent.’ There are several risks including a general pullback in the market that would likely impact more speculative stocks more than less speculative stocks.
But, the biggest risk is that Tesla isn’t the big winner in the electric vehicle sweepstakes.
Tesla seems best suited for risk-taking investors who buy into the narrative that Elon Musk is much smarter than all of the other automobile executives and that Tesla will capture a huge share of the electric vehicle market in the long term.
These investors also must believe that Musk’s attention won’t be diverted to Twitter or any of his other business ventures.
My advice to investors is don’t confuse a good product with a good investment. Many investors are drawn to companies that produce products they like and use. Investors often confuse a good product with a good investment opportunity.
The iconic fund manager Peter Lynch, who led the behemoth Fidelity Magellan fund, popularized the notion of investing in companies that you know.
In his classic bestselling book, One Up on Wall Street, Lynch emphasized that individuals are often able to spot trends in their local community before that information gets the attention of investment analysts.
For instance, one might identify that a new restaurant chain is becoming popular or that a new product is being praised by friends and family. Unfortunately, many people stop there, believing that all they have to do to succeed in investing is to identify great products and services.
They forget that Lynch also emphasized that those companies must have a sustainable business model and be attractively priced. A current example are the ride sharing services, Uber and Lyft. While the services they provide are terrific, the business model falls short on many fronts.
Investors thinking about putting money in a company that produces a product or service they like should look beyond simply the product or service and make sure the company’s financial house is in order. Companies that make iconic products can fail and go bankrupt.
Is Tesla a Buy: Final Words
While the sentiment is mixed on whether or not Tesla is a good stock to buy right now, most of those we spoke with do see long-term growth in the electric vehicle company and for the most part consider it to be worth picking up some shares.
With that said, you should always speak with a professional financial advisor before making any significant investment decisions.