Tesla (NASDAQ:TSLA) shares experienced an unprecedented collapse in recent months. The stock has seen a huge $700bn wiped off its market value.
So, let’s take a look at what this means for a hypothetical four-year investment, and explore where the share price might go next.
Why I take long positions
Tesla might have fallen 50% over the past six months, but it’s up 425% over four years. This is a perfect example of why investing should always be for the long term. Because, if I do my research well, and I pick wisely, a quality company will likely perform over the long run.
So, if I’d invested £1,000 in Tesla four years ago, today I’d have around £5,500. That’s due to share price gains and a depreciating pound. Clearly, I’d be a very happy investor, although I’m sure I’d be kicking myself for not cashing out 18 months ago when the share price peaked.
What’s behind the recent collapse?
In forecasting where Tesla’s share price might go next, it’s important to understand why it tanked in the autumn.
For a while at least, Tesla appeared to be defying the market, staying strong while growth stocks collapsed all around it. Elon Musk’s own commentary, as well as that of investors like Cathie Wood, probably played a part.
But eventually the bubble burst. Analysts tend to put this down to missing targets, concerns about margins after discounting its EVs, and Musk selling Tesla shares to finance a Twitter takeover. This is in addition to concerns about a worsening economic environment.
Where next?
Tesla was the first company to scale up the use of clean technology to produce desirable vehicles. It remains ahead of the pack in the EV revolution. The firm has money in the bank ($21bn as of September), and it generated free cash flow of $3.3bn in the third quarter of 2022.
But many investors have questioned the firm’s valuation. And for me, even after the share price tanked, those concerns remain. It trades with a trailing 12-month price-to-earnings (P/E) ratio of 33.5. And its price-to-sales ratio (5.5) is some way above Chinese EV makers and traditional car manufacturers.
Porsche, for example, trades with a P/E of just 3.1.
A high P/E suggests that investors see it as a growth stock. But as there’s that substantial distance between Tesla’s valuation and that of its peers, I have to ask: can it offer that much more growth than other car stocks?
It’s an incredibly hard question to answer, but recent performance isn’t hugely promising. The firm missed forecasts for the fourth quarter of 2022, achieving 405,000 deliveries, compared with an estimated 430,000. This marks the third successive quarter that the company’s production numbers have disappointed.
So, would I buy Tesla stock? It’s certainly more attractive than it was a year ago, but it’s too expensive for me. I think there are several Chinese EV companies — including NIO and Li Auto — that look more promising investments.
