Tesla (NASDAQ:TSLA) stock is a little divisive at this moment in time. It’s either an unbelievably and unjustifiably expensive car stock, or it’s a very expensive tech one with as-yet-unrealised potential in servers, robotics and more. The latter option is the only hope of justifying its valuation.
However, a decade ago, investors were likely presented with a similar dilemma. As an unproven carmaker, Tesla was very expensive based on conventional valuation metrics. But founder Elon Musk promised to dominate the electric vehicle (EV) sector — and he did for many years.
A decade ago, Tesla shares traded for $13.85, and today the stock is worth $179. That’s a 1,192% return for investors who were willing to take the plunge in 2014. As such, $1,000 back then would be worth $12,920.
Should you invest £1,000 in Tesla right now?
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That’s great, but what if I’d invested £1,000 in Tesla a decade ago?
Well, because of exchange rate fluctuations, 10 years ago, £1,000 would have got me $1,640 of Tesla stock.
And a $1,640 investment in Tesla back then would be worth $21,180 today. As the pound has depreciated considerably over the past decade, $21,180 is currently worth £16,557.
Forex can be a game-changer
When making an investment using a foreign currency, exchange rates probably aren’t at the front of our minds.
However, as the Tesla example highlights, exchange rate fluctuations can have a considerable bearing on our investments.
For example, 18 months ago when the pound was near parity with the dollar, I said I wasn’t investing in dollar-denominated stocks like Tesla or Nvidia.
The pound is 28% stronger today than it was back then, so unless I had invested in stocks that surged 28%, I would have lost money. In that respect, it was quite a good move.
Of course, predicting forex movements is incredibly challenging.
Having said that, it meant I also missed out on the opportunity to invest in companies like Nvidia and Super Micro Computer.
While I recognised the potential for strong returns on these stocks, I presumed these AI kingpins could achieve 20%-30% returns. Instead, they’ve delivered returns closer to 500% and 1,000% respectively.
Going forward, and based on interest rate forecasts, the pound could depreciate against the dollar over the next year. That may mean that now’s a good time to buy dollar-denominated stocks.
What about Tesla?
Tesla continues to divide analysts and investors. The stock is currently trading at 70.7 times forward earnings, which is phenomenally expensive compared to other car manufacturers. On this metric, it’s around four times more expensive than peer Li Auto.
However, Musk has been asking us to value Tesla like a tech stock and not a car company. He believes there’s infinitely more value in autonomous vehicles than there is purely in EVs.
As such all eyes will be on Tesla on 8 August when the company unveils its Robotaxi. If Tesla really has achieved a Level Five autonomous vehicle, it may be the start of a new chapter for it.
It won’t just be about car sales, but driverless taxi fleets and the sale of spare computing capacity — the latter aspect I find very interesting.
