Tesla shares: here’s what I would like to do

Tesla shares continue to rise. Electric vehicle and battery stocks are in great demand. Royston Roche takes a deeper look into the company

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Tesla (NASDAQ: TSLA) shares have been one of the best stocks to own recently. The stock has outperformed the broader market in the past few years. In the past year, the stock has returned 450% to its investors. The Nasdaq index rose 45% in the same period. 

I would like to understand the various pros and cons of investing in the stock. 

Bullish reasons to buy 

Tesla has the first-mover advantage of electric vehicles. Most manufacturers will reduce internal combustion engine car production. Governments around the globe are encouraging low-polluting vehicles. Consumers are increasingly becoming conscious about protecting the environment. I believe that electric vehicle stocks will be in huge demand in the next decade. The company also has the advantage to manufacture electric vehicles and build factories from the scratch. 

Recently, Tesla has reported its sixth quarterly profit in a row. This is a remarkable feat for the company. Management was able to overcome the critics that the company will not be profitable. By being profitable, the company can keep its place in the S&P 500 index. In fact, Exchange Traded Fund (ETF) ownership has indeed increased after the company’s inclusion in the S&P index. Notably, Cathie Wood’s ARK Funds has been adding more of Tesla shares recently. 

Tesla’s energy and storage business has started to do well. In my opinion, this business will help the company to overcome any competition in the electric vehicles segment. For the first time, total battery deployments surpassed 3 GWh in a single year, which is a growth of 83% year-over-year. The company might also benefit from the US and European government’s renewable energy push. 

Finally, looking into the financials, the company was able to grow its fourth-quarter 2020 revenues by 46% year-over-year to $10.7bn. Net income jumped to $270m when compared to $105m in the same period last year. Free cash flows were good, which came at $1.9bn. The company was also able to increase its production and deliver 499,550 vehicles in the year 2020. This is a huge jump to last year’s deliveries of 112,000 vehicles. 

Risks to consider 

The company will face tough competition from other car manufacturers. Chinese electric car companies like NIO and XPeng are aggressively targeting its market. Tesla is working on autonomous vehicles without any human intervention. If the company fails to satisfy various safety norms then it will negatively impact the company’s reputation.

Tesla shares had a good run in the past few years. A lot of funds have purchased the stock and they might book profit. The company’s stock has been very volatile in the past. Tesla is currently trading at a price-to-sales ratio of 22. The stock is expensive when compared to its five-year average price-to-sales ratio of 7. 

My final view on Tesla shares

The company is a growth stock. Electric vehicles and battery companies will be a theme for investing in the next two decades. However, considering the risks mentioned above, I’m going to swerve buying shares directly in Tesla and instead would like to buy Scottish Mortgage Investment Trust for exposure to US tech companies and also benefit from the fund’s exposure to electric vehicle stocks.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Roche has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Tesla. The Motley Fool UK owns shares of NIO Inc. 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.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »