Tesla As An Investment — Did You Wait Too Long?

Tesla as an investment over the years has had many people wondering.

When Tesla entered the S&P 500 in December, 2020, CNBC mused that the event was a sign of “just how powerful index investing has become.” Tesla was the biggest stock addition ever then, and, after a decade as a public company, it has already provided an “an astronomical total return since its IPO price of $17 in 2010.” CNBC wondered at the time what index fund investors might have “missed out on already.”

In January, 2021, US News reminded its audience that, while Tesla had just posted its first full year of profitability for 2020, shares were slipping as the all-electric company had missed on earnings.

In February, 2021, the Fool said that Tesla’s valuation seemed “crazy” by any traditional measure. At that time, the company was valued at 24 times sales and the price-to-earnings ratio was 1,332. The Fool added that generating hundreds of millions in regulatory credit sales weren’t core Tesla operations and that the electric car maker’s quarterly revenue made it barely past estimates. It stated that Tesla was “relying mostly on sales of environmental credits sold to other automakers and the liquidation of 10% of its $1.5 billion bitcoin investment.”

In April, 2021, Reuters noted that shares of Tesla had fallen more than 4% as its first-quarter earnings results had failed to alleviate investor concerns about “its lofty evaluation, as well as a prolonged global chip shortage and rising competition.”

Fast forward to late October, 2021. Shares of Tesla on Friday, October 29 at 3 pm were $1098.23. The stock’s increase mimics analysts who predict its 12-month price target as an investment is likely valued at $1,300. The Fool exclaims that these gains build on “staggering momentum over the last month. Month to date, the stock is up a whopping 44% as investors digest the company’s strong third-quarter earnings report.”

What was/is the right moment to add Tesla as an investment? (Note: I am a Tesla investor … albeit a small one.) Did you miss the best investment opportunity of your lifetime?

Why has Tesla as an Investment been So Appealing This Week?

Tesla as an investment has risen above many expectations of late, causing people to muse over the confluence of events that triggered the rise in confidence and value. What, exactly, happened?

In the first 3 quarters of 2021, the Tesla Model 3 led all other EVs in European sales. This is noteworthy because it is the first all-electric model to top the European charts — ever. Renault SA’s Clio and Volkswagen AG’s Golf were contenders but couldn’t win out over the Model 3. Partially, the success story here is a turning point for all EVs, as automotive manufacturers turn away from the internal combustion engine (ICE). But achieving the head-of-the-line slot is significant because that top car was a Tesla, and Tesla is headquartered outside of Europe.

And it’s not just Europeans who are enamored of the Tesla Model 3. The UK, too, has demonstrated a clear preference for the Tesla brand. The US isn’t the only nationalistic region around, and, so, the Model 3’s sale performance is impressive. Clearly, the Model 3’s 353 mile estimated range exceeds competitors’ range, is a model for other automakers, and is a strong selling point. Nor are consumers in the US  buying a cross section of electric vehicles — they’re yearning for Teslas.  (I know, as I’m someone who’s eagerly awaiting the delivery of my new Tesla Model Y.) The Tesla brand has comprised the majority of EVs sold, including 14% globally in 2019.

Moreover, Tesla has demonstrated that it can take an idea about a sustainable transportation future and make it a viable reality. This makes Tesla as an investment very appealing. Tesla has crossed not only the threshold of 1 million sales of a single model — it had demonstrated the manufacturing capability of producing a million cars per year. The company’s production ramps in California and Shanghai have made such delivery heights possible, and the lure of upcoming Texas and Germany Gigafactories production start dates is an investment incentive.

The Hertz/Uber effect cannot be overlook as part of considering Tesla as an investment. Tesla became a trillion-dollar company this week after the announcement of its impressive deal with Hertz. The plan is for Hertz to purchase 100,000 Tesla Model 3 sedans by the end of 2022. Hertz also announced that Uber has committed to renting as many as half of these Model 3s to its ride-share drivers. And, if you haven’t already heard, Tampa Bay Buccaneers’ quarterback Tom Brady will be the spokesperson for the new fleet. Hertz stated it is confident that its customers will pay higher rates for a “premium and differentiated rental experience.”

The future for Tesla as an investment is bright.Renowned venture capitalist John Doerr this week predicted that bullish Tesla analysts were probably right — the company will lead the way during the global transition to an all-electric transportation sector. “They are committed to being a global leader, and I believe they will be in the transportation future,” Doerr said at the CNBC ESG Impact summit. Forbes predicts that the company — which is up 142% in the last year — could double in the next year due to a combination of demand for rental Teslas, expansion in the China market, more efficient batteries, and CEO Elon Musk’s pattern of tweets that can move markets, known as the “Musk Meme effect.”

Final Thoughts about Tesla as an Investment

Sure, some media pundits continue to poo-poo Tesla, saying that Tesla dominance of the all-electric market will change and eat away at Tesla’s market share. They boast that legacy automakers and startups will invest billions in new vehicles as real competition against Tesla.

And Ark Investment CEO Cathie Wood, whom Yahoo Finance says is “known for investing in high-flying tech stocks” and has been bullish on Tesla for years, sold 46,414 shares of Tesla last Thursday, 80,354 shares last Friday, and continued the trend on Monday by moving another 22,598 shares of the company. That being said, Tesla remains the largest holding at Ark Invest. It’s nice to show a profit for your clients, especially if there is a strong sense that the company will continue to produce in the coming years. Also, Ark Invest has a policy of not allowing more than 10% of its funds to be in one equity, so when Tesla’s stock price rises significantly, they have to sell in order to comply with their own policy.

So, to answer the question posed in the title of this article, investment is in the eye of the beholder. Then again, if you believe that past practice is the foundation for future performance, Tesla is a good bet.