Tesla (NASDAQ: TSLA) stock is currently trading hands at $1,163 a share. The $1.2trn growth company has had a remarkable stock market ride over the past year, with the shares popping up by 175%! In contrast the S&P 500 has risen by 32.4%. A significant outperformance by any measure. The contrast become even more stark when you look at the figures over a five-year period, with Tesla shares appreciating by an eye-watering 2,981% compared to the S&P’s 117%.
What’s all the fuss about?
Tesla is by far and away the market leader in electric vehicles. This is true in both the design of its cars and their battery technology. The company is led by the eccentric and sometimes erratic visionary Elon Musk, who has championed the electric car revolution and driven the company forward despite the critics.
The drive to reach net zero by 2050 is a challenge that most governments in the developed world have signed up to achieve. The switch from gas-guzzling combustion engines to more environmentally friendly electric vehicles is top of the agenda.
In September, European EV car sales increased by 42% year on year. The two most popular models were the Tesla Model 3 and the Tesla Model Y. It is clear to see that Tesla commands a market-leading position in the EV market but the likes of General Motors, Ford and Volkswagen are biting at its heels.
To buy or not to buy
Shareholders in Tesla have reaped the rewards of their continued faith despite setbacks along the road to success. Tesla now has a market capitalisation larger than the next 10 biggest automakers. This is remarkable given that it only delivers a fraction of their combined sales.
When we take account of the current share price compared to the underlying earnings, we see that Tesla is trading at 290 times its 2021 earnings. By contrast Volkswagen, a competitor with its own EV range, is trading at 5.5 times its 2021 earnings. Despite the remarkable differential in financial figures, investors it seems are still positive on the shares.
Tesla has performed well during the semiconductor shortage and managed to keep production at record levels. In its Q2 earnings call Tesla announced a 98% jump in sales to $12bn. Its gross profit margins also came in at 25.8%, way ahead of analysts’ expectations. Sales were also projected to grow by around 50% per annum for several more years. A remarkable number for any company, even more so for an automaker.
Despite the fanfare, with Tesla’s staggering share appreciation over the past year and its current price to earnings ratio, this investor will be leaving the shares on his watch list for the time being. There is no doubt in my mind, however, that the EV revolution is underway so I will be maintaining a very active interest the shares.