Tesla (NASDAQ:TSLA) stock was trading at $29.53 at the start of 2020.
This in itself marked an incredible run, since it underwent its IPO in July 2010.
In just shy of a decade, investors from the very beginning saw the stock rise by over 2,000%.
However, even if you missed out on that initial run, you’d have been greatly rewarded if you invested at the start of 2020.
The stock has increased by 691% since then.
For perspective, if I’d invested £10,000 then, I’d have £69,103 today. My money would’ve risen almost sevenfold, which is quite incredible.
However, is Tesla stock still worth investing in today? Will it generate similar returns going forward?
I’ll be looking at these questions below.
The future of Tesla?
With a market cap of just over $740bn, Tesla is already one of the most valuable companies in the world.
If it were to grow at the same rate it has since 2020, it would be valued at more than $5.1trn by 2027.
This would make it one of the most valuable companies in history — and almost $2.2trn more than Apple, the current most valuable company in the world.
In my eyes, this is inconceivable. I don’t just believe it can’t reach this valuation in the next four years. I don’t even believe it can achieve this in the next 10 years.
Firstly, it would require monstrous growth to even be in the conversation of justifying this.
While it has been able to grow revenue rapidly from £24.6bn at the end of 2019 to £95.9bn in the trailing 12 months, it’s difficult to see this level of expansion continue. Recent news of the electric vehicle market experiencing a slowdown in growth is an indicator.
Furthermore, in the latest quarter, revenue only increased by 9% year on year.
Secondly, it’s not trading cheaply. With a price-to-earnings (P/E) ratio of 78, it’s very difficult to see room for its stock to grow.
Unfortunately, I think the boat has passed for investors to generate life-changing returns with Tesla stock.
In fact, I don’t think it’ll generate investors any meaningful returns over the next few years. It’s a highly expensive stock that isn’t growing anywhere near fast enough to justify its valuation.
Stagnant last few years
I also believe it’s misleading to believe that Tesla has been a great investment over the last four years.
It was only a great investment in 2020.
Out of the 691% it has returned since the start of 2020, 696% was achieved in 2020.
That means it has actually lost 5% from 2021 onwards.
I think this sideways share-price movement is what we’ll be seeing from Tesla stock going forward.
For context, the S&P 500 has been a far better investment in that timeframe, returning 20%.
Instead, investors should consider looking for the next Tesla. For example, General Motors.
Its CEO, Mary Barra, has claimed that its autonomous driving subsidiary, Cruise, can reach $50bn in revenue by 2030 from virtually nothing today. That’s a serious level of growth. A P/E ratio of 4 therefore signals a potential bargain.
When you also consider that its market cap is only $38bn and the main business alone already generates over $170bn, I believe there is the potential for Tesla-like returns here.
