Tesla shares (NASDAQ: TSLA) are never far from the headlines. The electric vehicle (EV) and clean energy company spearheaded by the ever-prominent Elon Musk consistently walks a thin line between dazzling innovations and eyebrow-raising controversies. For many investors, Tesla isn’t just a business; it’s a window to the future.
Yet, as we dissect recent events, the question arises: am I still as excited about this investment as I was?
A rocky road
Tesla’s journey has been anything but smooth. Recent months have been a mixed bag, with the stock price down significantly, before seeing a resurgence in the last week or so.
Product recalls, staff layoffs, and price cuts all led to major sell-offs as investors feared a struggle in the high interest rate environment. A generally negative tone from Musk in previous earnings calls and events also went some way to pouring cold water on the excitement we’ve come to expect.
Furthermore, Musk’s recent focus on political and social topics have left some questioning whether his full focus is on the company. The recent vote on whether he should be entitled to a new pay package didn’t help, with many suggesting that if he’s not being given the compensation and influence he wants, then Tesla may be in trouble.
What’s next?
Such issues are nothing new to experienced Tesla investors. Many will remember the volatility as Tesla entered the S&P 500, or when Musk claimed to have secured funding to go private. The noise surrounding the firm has been ongoing for years, and I see them as nothing more than a distraction. I care more about delivery numbers, profit margins, and new products.
Many will consider Tesla’s price-to-earnings (P/E) ratio of 42 overvalued. With a discounted cash flow calculation showing it as much as 80% overvalued at current levels, this is hard to dispute. However, with AI and software becoming such a critical part of how the market looks at Tesla’s valuation, many will say this car company is now so much more.
With Full Self Driving (FSD) now rolling out across China, Tesla is making a big statement in a competitive sector. By building up user miles across the globe, the software can refine and continuously improve, making it very difficult for competition to catch up.
The numbers
For me, the key concern lately has been annual revenues declining by 9%, the first decline when compared with the previous year. This was widely forecast by Musk and the team in previous earnings calls, citing softer demand due to high interest rates. However, with tremendous cash reserves, and a close eye on the balance sheet, I don’t have any concerns about Tesla getting through another difficult period for the economy.
With Tesla projecting strong annual growth of 12% over the coming years, as new products hit the market and as demand returns, I see the same exciting future I’ve always seen for those willing to stick with it.
Worth the risk?
Investing in Tesla shares isn’t for everyone. The stock price can collapse overnight, and soar the next day for little reason, but the business itself keeps on showcasing an ability to move in a sustainable and innovative way. I’ll be a shareholder in Tesla for the foreseeable.
