It has been quite the year so far for shareholders in electric vehicle manufacturer Tesla (NASDAQ: TSLA). The Tesla share price is down by 34% since the turn of the year. But it had been doing worse until a 19% jump over the past two weeks.
So, might that momentum continue and the Tesla share price keep going up? I have long wanted to add the share to my portfolio if only I could do so at what I see as an attractive price.
High volatility for a large company
Share prices move around often, but Tesla still seems to be unusually volatile for a company of its size.
Its current market capitalisation is $841bn. So, it has added around $135bn of value over the past fortnight.
But I do not think the business has actually demonstrated $135bn of more value than was the case a couple of weeks ago.
Rather, my take on what is going on is that bears have been selling Tesla for months (it is down 44% since mid-December, even after the recent rally). Bargain hunters have now started to buy Tesla shares at what they think is an attractive price.
The fundamentals may get worse not better
But I will not be joining them.
Looking at a chart and trying to guess what will happen next just on the basis of that can be tempting – but it is not the sort of investing that interests me. Even when a share has fallen a lot, it can always fall further.
Over the long term, Tesla has performed spectacularly well.
But I think the price crash of recent months reflects real concerns investors have about the company.
Last year was the first one in which its sales volumes fell (albeit only slightly). Chinese rivals like BYD performed strongly, while globally competition put pressure on profit margins for electric vehicle makers.
This year could be much worse. Today (2 April), Tesla released its first-quarter numbers. Vehicle deliveries showed a year-on-year decline of 13%.
By contrast, BYD’s first-quarter passenger vehicle sales volumes were not only much bigger than Tesla’s, but they showed a staggering 59% year-on-year growth.
So while Tesla has a strong brand, proprietary technology and a large installed user base, its business now seems to be struggling to grow in a way it did not before.
I reckon Tesla’s very overvalued
Tesla has confounded critics many times and may do so again. It is dangling potential new revenue streams such as driverless taxi fleets and robots.
The first quarter was not all bad for Tesla. Its energy storage business deployments grew 160% compared to the same quarter last year, which at the time was the best to date. I think that demonstrates the huge, rapid growth potential of this business.
But I do not think that either the energy storage or the car business have the overall growth prospects to justify a price-to-earnings ratio anywhere close to Tesla’s current 132.
The Tesla share price still looks far overblown to me. Momentum may keep it moving up for now. But looking at the business fundamentals, I could not justify buying the share for my portfolio anywhere close to the present valuation.
