Unpopular opinion alert! I think Tesla shares are overvalued at $1,000

Jonathan Smith explains why he thinks Tesla shares are overvalued, the same week that the market capitalisation passes the golden $1trn mark.

| 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 hit all-time highs yesterday at $1,085 after breaking above the $1,000 at the start of the week. This key milestone also pushed the market capitalisation above the $1trn mark. Doing so it becomes the first carmarker to hit this peak, and joins a club of stocks valued above $1trn that I can count on my two hands! Given such a lofty value, I won’t be looking to buy any shares. Let me explain.

Reasons for the recent jump

The jump in Tesla shares this week was largely to do with an announcement by Hertz. News broke that the car rental company had ordered 100,000 cars from Tesla, due for delivery by the end of this year. This is a huge order for both sides. For Hertz, this represents around 20% of the size of the current fleet. For Tesla, it produced just over 237,000 cars in Q3. So this order makes up a large chunk of total production for an entire three months.

The positive boost for the share price was justified on this news. I think this is a great deal for both sides and does increase the value of Tesla stock due to the revenue generated. 

Should you invest £1,000 in Dfs Furniture Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Dfs Furniture Plc made the list?

See the 6 stocks

Another reason for the continued rally in Tesla is down to the most recent Q3 results. These came out last week and showed good growth. More specifically, production was up 67% year-on-year. Automotive revenue was up 58% over the same period, helping to deliver over $2bn in net income for the quarter.

Why I think Tesla shares are overvalued

I recognise that Tesla is doing a great job now it has reached scale and is generating profitable quarters. Yet I think that the current value assigned to Tesla shares is too optimistic.

For example, let’s take a look at the price-to-earnings ratio. This is the most common tool I look at to see a value of a stock. For Tesla, the ratio is at 332. In comparison, I usually look at a stock with a ratio of 10 and use this figure as a general barometer of where a fairly valued company should be. 

So just to clarify, Tesla shares are currently trading at 332 times earnings. That’s an incredibly large premium attached. I agree the company has a bright future and does command a premium when buying shares, but not this much.

NIO is the most similar EV company on the market. With a market capitalisation of $67bn, it’s still loss-making so has a P/E ratio of 0. Another company I can look at is Toyota. It has a market cap of $280bn, and a P/E ratio of 9.

So I just struggle to want to buy shares in a company that dwarfs the value of other car companies, despite not having the car production or net income to justify the premium.

Clearly, my opinion is unpopular in the market. Tesla shares have only been heading higher recently. I could be wrong going forward, with momentum and positive results pushing the shares even higher. I won’t be investing any time soon.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

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.

jonathansmith1 has no position in any share mentioned. The Motley Fool UK owns shares of and has recommended NIO Inc. and Tesla. 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

If an investor put £10k into Greggs shares one month ago, here’s what they’d have today

Greggs shares have had a tough year but Harvey Jones says they're notably cheaper as a result, while the dividend…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

The Phoenix share price jumps 7.5% on today’s results, but still yields a stunning 9.4%!

Harvey Jones put his faith in the Phoenix share price and this morning was rewarded with a 7.5% jump on…

Read more »

Investing Articles

What’s been going on with the Barclays share price?

The rising Barclays share price reflects confidence in management’s strategy to improve business performance and enhance shareholder returns.

Read more »

Investing Articles

Prediction: in 1 year, the IAG share price could reach as high as…

The IAG share price has almost doubled in the last 12 months, but can this momentum continue in 2025? Zaven…

Read more »

Investing Articles

Prediction: in 12 months, here’s where the Glencore share price could be…

The performance of Glencore’s share price has been lacklustre, to say the least. But could all that change over the…

Read more »

Investing Articles

See how much an investor needs in their ISA to earn a £499 monthly second income

Harvey Jones crunches the numbers to show how it's possible to build a long-term second income by investing in a…

Read more »

Investing Articles

I’m considering buying more of this struggling FTSE 100 stock

This FTSE 100 stock hasn't exactly set our writer's portfolio on fire during the time he's owned it. But Paul…

Read more »

a couple embrace in front of their new home
Investing Articles

Prediction: in 1 year, the Taylor Wimpey share price could reach…

Can Britain’s reformed planning scheme send the Taylor Wimpey share price into overdrive? Here’s what the latest analyst forecasts predict.

Read more »