It’s no secret that Tesla (NASDAQ: TSLA) has made monumental gains in recent periods. Although past performance is not a reliable indicator for future performance, of course, its share price is up 1,500% over the past five years as its CEO Elon Musk has led the firm in its rise to a $1trn company.
The stock is currently trading for just below $1,000. So, should I be buying shares in the electric vehicle (EV) manufacturer? Let’s explore.
Tesla’s positive Q1
Late last week Tesla released its Q1 results. And there were plenty of positives to take away. Within the period, the firm produced over 305,000 EVs and delivered 310,000, despite ongoing supply chain issues. It also managed to increase revenues by 87% from the same period a year ago, while gross profit increased a substantial 132%. Given the tough economic conditions the firm has faced, such as limited production at the firm’s Shanghai factory, these are impressive results.
What I also like about Tesla is the ambition of Musk. The company anticipates growing its rate of deliveries at 50% for a number of years ahead. And this will be boosted by the recent opening of its gigafactory in Berlin. The factory will aid Tesla’s expansion into Europe and will produce 500,000 vehicles and millions of battery cells every year. If this growth continues, it’s hard to see the share price slowing down any time soon.
Musk also recently promised that Tesla’s robotaxi will be ready by 2024. The vehicle will have no wheels or pedals, and Musk has reiterated the vehicle will be focused on creating the lowest cost-per-mile price. This could provide a huge boost for Tesla’s growth in the near future. However, it must be noted that Musk has failed to deliver on deadlines numerous times, putting the 2024 target in doubt.
Tesla concerns
One major concern for me is competition. While Tesla has shown its resilience over the past few years, as established manufacturers dive deeper into the EV space, this may Tesla’s dominant position in the market. For example, rival Volkswagen has been making headway in EVs. And it poses a large threat to Tesla’s European sales.
Please note, investing in stocks and shares puts your capital at risk, and Tesla’s high valuation is of further concern to me. With a current price-to-earnings (P/E) ratio of 134, it’s easy to see it as overvalued. For context, General Motors has a P/E of 5.95. When looking to buy Tesla shares, this overvaluation is a deterrent for me.
Should I be buying?
Tesla’s latest results show that despite its doubters, it seems to able to continue growing. In a period plagued with supply chain issues, its delivery numbers are also impressive. Further, continuous rising revenue is a tempting factor when considering buying shares.
However, its overvaluation concerns me. And despite its strength in the EV space, I think we could begin to see this undermined in the years ahead as more manufacturers make the inevitable transition into the sector. Yet while I won’t be buying Tesla shares today, they’re most certainly on my watchlist for the near future.