Heading into 2022, Tesla (NASDAQ: TSLA) was a hotly discussed stock. It had risen around 50% in the prior year. I looked at Tesla shares early last year and decided not to buy them. But what would have happened if I did?
Tesla shares tanked in 2022
Last year, the shares fell by 65%. That is a sizeable dip. So imagine I had put £800 into Tesla shares at the start of last year. My shares would have ended the year worth only around £280.
One thing worth mentioning is that Tesla shares trade in dollars. The weak performance of the pound compared to the dollar last year may have eased my pain slightly in this case. The pound lost about 12% of its value relative to the dollar. But my £800 would have been converted to dollars in January if I had bought the Tesla shares then.
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So holding the dollar-denominated shares would mean I saw some benefit from the stronger dollar if I sold them and put the money back into pounds. Still, if I had done that on the last trading day of 2022, I would have lost more than half my money. Tesla does not pay a dividend so I would not have received any.
2023 has started badly for Tesla shares, with a fall of 12% yesterday after the car firm released its latest sales numbers. So if I had chosen not to sell the shares at the end of December, my paper loss would now be even bigger.
Long-term investing
Still, I am a long-term investor. Despite Tesla shares crashing last year, they are still up 412% in the past five years.
In other words, excluding currency conversion, if I had invested £800 in the company five years ago, I would now have a holding worth nearly £4,100. That is a very impressive return.
So does the falling share price present a buying opportunity for my portfolio as we start 2023? Or might they still be overvalued relative to the company’s long-term worth, even after last year’s sharp fall?
My plan for 2023
For now, I continue to see the shares as overpriced. Even after yesterday’s sharp drop on top of last year’s weak performance, the company has a market capitalisation of over $300bn. It trades on a price-to-earnings ratio of over 60. I regard that as a pricy.
However, earnings may improve sharply in the next few years. While Tesla’s fourth-quarter numbers were not warmly received by Wall Street, they still show very strong growth. The number of cars produced in the quarter was 44% higher than the same period last year, while sales volumes were up 31%.
Tesla has grown its manufacturing capacity and ought to be able to keep ramping up production strongly. Its well-known brand and electric vehicle (EV) focus should help it benefit from increased demand for EVs in coming years.
For now, I see Tesla shares as overvalued so will not be adding them to my portfolio. But I will keep an eye out in 2023 both on the business prospects and share price, in case the shares reaches a level I regard as attractive.
