The Motley Fool owns and recommends Alphabet (A shares) and Tesla. “I strongly believe Tesla is an epic long-term investment, and don’t sweat it when, you know, things go up and down,” Musk said on the Q earnings call. Let’s consider some important recent developments, as well as bigger-picture items, before coming to a conclusion. Get Forbes Advisor’s expert insights on investing in a variety of financial instruments, from stocks and bonds to cryptocurrencies and more.
Net income of $5.5 billion translates to a profit margin of 10.2%, which should expand if Tesla can continue to gain operating scale with its EV manufacturing while managing supply chain costs. This has to be a key part of the investing thesis if you’re comfortably buying shares at today’s steep valuation. Tesla continues to be one of the most expensive electric vehicles out there, but it’s still the highest seller for all-electric driving enthusiasts. One Reddit thread explores some of the most popular reasons people choose a Tesla, with three features consistently popping up in the replies. Edward Sheldon has no position in any of the shares mentioned. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Pros Of Buying Tesla Stock
Major projects such as the Gigafactory are often plagued with logistical or regulatory hurdles, and it remains to be seen if the factory can be completed on time. The Nevada government has given the green light to the Gigafactory, which is expected to produce $100 billion in additional economic activity over the subsequent decades. Tesla had approximately 3.16 billion shares outstanding as of Oct. 18, 2022.
The company said commercial operations could begin by the fourth quarter of 2024 if the project moves forward. Many investors may feel they have missed the boat with Tesla (TSLA 1.87%). While the stock has been up over 1,800% in the last three years, it has dropped more than 25% since early January. That shouldn’t be too much of a surprise, however, with the stock valued for much success coming into this year. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Brett Schafer has no position in any of the stocks mentioned.
Our partners cannot pay us to guarantee favorable reviews of their products or services. The greater the growth potential over the long term, the higher the valuation. Yet, the value of a stock also becomes more volatile as the valuation is dependent on the assumptions driving the long-term forecasts. It would be one thing if Tesla’s stellar quarter was a one-off, but it isn’t. The company believes it has a “reasonable shot” at increasing vehicle production another 60% this year, compared to 2021.
Tesla Stock Forecast
Oil companies are getting better at finding oil and, with the help of hydraulic fracturing and horizontal drilling, they are also more effective at extracting oil. When gas prices tumbled in 2014 and 2015, Tesla lost some of its luster. After all, gasoline-powered cars compete with Tesla’s products, and declining gas prices make gasoline-powered cars more economically attractive.
I’m not selling a single Tesla share, as I expect the stock to outperform going into earnings here and longer-term. In addition to increasing the unit sales projection, we forecast that Tesla will be able to boost its gross profit margins in the automotive business to 37.2% in 2030 from 26.6% in 2020. As such, our forecasted operating margin for the next five years increases to 14.4% from 6.3% in 2020. Tesla is targeting a 25% gross margin on its automotive sales. That’s high for an automaker, but if Tesla can consistently generate a 25% gross margin, it will be making about a $10,000-$15,000 gross profit on each Model 3 or Model Y it sells. By contrast, Toyota’s average gross profit in its last fiscal year was about $5,000 per vehicle.
- It’s not mysterious because the company is tough to understand; its business of manufacturing and selling cars is pretty straightforward.
- Primarily known for its electric vehicles, Tesla also produces energy generation and storage systems, areas that have experienced increased demand in recent years.
- One crucial negative for investors has always been the company’s valuation.
However, before you do, make sure you want to invest in Tesla stock. Self-driving cars are a massive technological movement investors will want to participate in. One of the most successful investors of modern times has a specific investing strategy. Earnings growth is one of the key drivers of a company’s stock price over the long term. After years of posting losses, Tesla finally turned the corner on profitability in 2020.
Should I buy Tesla stock for 2023?
In 2023, it unveiled an additional $3.6 billion investment to continue the expansion of Gigafactory Nevada. The company also plans to invest more than $5 billion in building a new gigafactory in Mexico. One of the bull cases with Tesla is that it is not just an EV manufacturer but also a transportation and energy platform. It plans to do this with its autonomous driving software that it labels full self-driving (FSD) and energy products like solar roof tiles and battery storage. While this sounds cool in theory, these new business lines haven’t gone well so far in practice.
Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns. Tesla’s gross margin has been trending around 25-30% for several quarters. Last quarter, the company reported an automotive gross margin of 30.6% and a total GAAP gross margin of 27.4%. In Q3 2021, Tesla delivered a total gross margin of around 27% and an operating margin close to 15%. Traditional automakers like Ford and GM typically have gross margins of about 10-15%, and their Japanese counterparts like Honda and Toyota have gross margins of around 20%. However, as the company grows more efficient due to economies of scale and high production standards, Tesla’s profitability numbers have been much more robust than its counterparts lately.
Tesla’s revenues should continue expanding by 40-50% in 2023, and we should continue seeing robust double-digit growth in future years. Tesla has many other great features that people like, but these are the three most popular ones that draw drivers into their line of cars. Maybe someday the other companies offering electric vehicles will have as big of a following as Tesla does, but right now, only one company stands out. Primarily known for its electric vehicles, Tesla also produces energy generation and storage systems, areas that have experienced increased demand in recent years. Certainly, Tesla could grow to the point at which it justifies its current valuation — eventually. And there’s no telling where the share price will be once we hit that point.
Tesla’s Recent Developments
Rivals include Ford, Porsche, Mercedes, BMW, VW, Rivian, and more. Given the high level of competition, Tesla is likely to lose EV market share in 2023. When I looked at the investment case for Tesla this time last year, I was put off by the company’s valuation. At the time, the price-to-earnings (P/E) ratio was near 130. With a trillion-dollar valuation, Tesla’s success as an electric vehicle manufacturer is hard to dispute. However, there are still many potential hurdles to overcome, from the difficulty of developing affordable EV technology to the risks posed by competing firms.
At first blush one could be forgiven for expecting a further drop – after all stock after stock has already put in 0.618 or 0.786 retracements of similar moves up. To our eye it looks like the 2022 bottom may well be in, because so many big-name https://1investing.in/ stocks have bottomed out at those deep retracement levels. And we take that as evidence that maybe, maybe – TSLA has bottomed too. The market is asking you to pay 14x TTM revenue, 59x TTM EBITDA or 123x TTM unlevered pretax FCF for Tesla.
Tesla is a household name, even among those who don’t typically follow the automotive or technology industries. Although the company’s vehicles are well-known, it faces some substantial challenges. Toyota already has dozens of manufacturing plants around the world, including 14 in the U.S. alone. The tweet is alleged to have been an effort to manipulate TSLA’s share price, a violation of federal securities laws.
Exchange rate charges may adversely affect the value of shares in sterling terms, and you could lose money in sterling even if the stock price rises in the currency of origin. Any performance statistics that do not adjust for exchange rate changes are likely to result in an inaccurate portrayal of real returns for sterling-based investors. While it’s true that Tesla stock trades at an expensive price tag, it may be more deserved than some investors realize. Indeed, the valuation looks quite reasonable next to the company’s attractive combination of a healthy balance sheet, pent-up demand for its vehicles, and soaring revenue. Yes, measured by traditional valuation metrics like price-to-earnings and price-to-sales, Tesla shares look expensive on the surface. But the stock trades at such a steep premium for a reason.
Closing arguments in the case took place in January 2022, with lawyers for the plaintiffs arguing Musk should return the Tesla shares he received for his SolarCity stock, valued as of January 2022 at $13 billion. A ruling in the case remained pending as of April 21, 2022. If you had invested in Tesla in 2011, you would have a five-figure return. Over those 10 years, Tesla went from selling just the Roadster to offering the Models S, 3, X and Y. It has also announced the Cybertruck and Tesla Semi, but has remained noncommittal about launch dates for both vehicles.
If you want an index with even larger TSLA representation, you might consider investing in a Nasdaq index fund, where Tesla accounts for almost 4% of holdings. Outside of comparing TSLA’s performance to that of other stocks, you may also want to measure types of defects in quality control it against industry benchmarks, like the S&P 500 and Nasdaq Composite Index. This will tell you how Tesla is performing compared to the market overall. Once you’ve decided how much you want to invest in Tesla, you can buy your first shares.
Tesla did not pay out dividends in 2022, but that’s typical of a company focused on growth. According to the company’s annual report, it has never paid dividends, nor does it anticipate paying dividends in the foreseeable future. One of the most mysterious stocks on the market these days is Tesla (TSLA 1.87%). The content of this article was relevant at the time of publishing.
Elon Musk invested in the company and became its chair the next year. An out-of-court settlement of Eberhard’s lawsuit against Musk after Eberhard’s ouster as CEO allowed both men to call themselves co-founders, along with Tarpenning and early hires Ian Wright and J.B. The company was founded as a maker of electric vehicles and related components and has subsequently expanded into energy generation and energy storage products. Tesla went public in an initial public offering (IPO) on June 29, 2010. Opening a brokerage account is your key to buying and selling securities, like stocks, mutual funds and exchange-traded funds (ETFs).
Add on all the stock options and restricted stock units, and the fully diluted market cap is closer to $1.25 trillion. Compare that to its trailing net income of $5.5 billion, and Tesla has a price-to-earnings ratio (P/E) of approximately 227. The market’s average is 26, or just less than one-tenth of Tesla’s P/E. Tesla delivered an operating margin of nearly 15% in its last quarter, significantly higher than other automakers. For instance, Ford’s (F) operating margin has typically been around 2-3% in recent years. The company’s operating margin also dipped into negative territory recently.
Some tech companies may also join the fray; Apple, Inc. believes it can challenge Tesla in the transportation industry, and Google has also placed bets on the auto industry. Tesla is admittedly concerned about businesses with broader existing consumer bases. Petroleum supplies are increasing and, at the same time, internal combustion engines are more fuel-efficient.