Tesla (NASDAQ: TSLA) stock has had quite a pullback recently. Back in November, Tesla’s share price hit $415. Today however, it’s at $249. That represents a decline of approximately 40%.
I’ve had Tesla on my watchlist for years now but I’ve never actually pulled the trigger and bought it. Is it finally time to buy the stock for my portfolio? Let’s discuss.
Three reasons to buy Tesla stock
There’s a lot I like about Tesla.
Firstly, there’s the electric vehicle (EV) growth story. This is still in its early days and Tesla is a market leader. In the most recent quarter, Tesla produced 365,923 EVs and delivered 343,830 of them. These figures are up from 238,000 and 240,000 a year earlier.
Second, there’s its autonomous driving technology, which is very advanced. If I’m honest, this is what really excites me about the stock. If the company can crack ‘Level 5’ driving technology (full automation even in urban environments), the potential is enormous.
Tesla is also making progress in the robot space. Recently, it unveiled its ‘Optimus’ robot at its AI day. This could be another growth driver for the company. Having said that, its technology here appears to be a long way behind that of Boston Dynamics.
Overall, the growth story remains quite exciting.
As for the stock’s valuation, it’s not so crazy any more. Right now, Wall Street expects Tesla to generate earnings per share of $5.85 in 2023. At the current share price, that equates to a forward-looking P/E ratio of about 43. So, it appears that Tesla has grown its high valuation a bit.
Big risks to consider
Having said all that, there are quite a few risks to consider here.
In the near term, the big risk is supply chain issues. These are affecting all manufacturing companies right now, including Tesla. We can see this in the gap between the Q3 production and delivery figures. It’s worth noting that the delivery figure of 343,830 EVs was below Wall Street’s expectations.
Another near-term risk is a weaker consumer. In a recession, people tend to hold off on buying new cars. “While Tesla continues to point to supply constraints as limiting deliveries, the potential for demand destruction looms large,” said JP Morgan analyst Ryan Brinkman earlier this week.
The other major risk is competition. In the EV space, Tesla faces competition from dozens of rivals, including the likes of Ford, GM, BMW, Volvo, and Mercedes Benz. All of these companies are releasing slick new vehicles. Meanwhile, in the autonomous space, Tesla faces competition from Waymo, Cruise, Zoox, and others. So, there’s no guarantee it will be the winner.
Tesla stock: my move now
Weighing all of this up, I’m going to leave Tesla stock on my watchlist for now. I do like the growth story, but I have concerns over the supply chain issues and the spending power of consumers in the near term.
All things considered, I think there are better growth stocks to buy for my portfolio today.