After a period of underperformance, Tesla (NASDAQ: TSLA) shares are rising again. Since mid-May, its share price has jumped from around $575 to $645 and the shares are up almost 136% in a year.
So is now a good time for me to buy Tesla shares? Or is the company still overvalued? Let’s take a look at the electric vehicle (EV) stock.
Tesla shares: 3 reasons to be bullish
There are certainly reasons to be bullish on Tesla shares right now. One is that the EV market looks set for huge growth over the next decade. According to Allied Market Research, the global market is expected to be worth around $800bn by 2027, up from $162bn in 2019. Tesla is the leader in the market (right now, anyway), so there could be significant growth for the company ahead.
Another reason to be bullish on TSLA is that the automaker continues to ramp up vehicle production. In the second quarter of 2021, the company delivered 201,250 vehicles, compared to 90,650 in Q2 2020. That represents year-on-year growth of 122%. Very impressive. It’s worth noting that Wall Street analysts had been expecting Tesla to deliver 200,258 vehicles for the quarter.
Additionally, Tesla is the clear leader in EV battery technology right now. Late last year, analysts at UBS ‘”tore down” seven competing car batteries. They found that Tesla came out on top by most measures.
Risks
However, I do have some concerns about Tesla shares. My main one is in relation to the intense level of competition Tesla is likely to face in the years ahead. According to a recent report from the International Energy Agency, 18 out of the world’s top 20 vehicle manufacturers have recently announced plans to rapidly scale up production of electric vehicles. Essentially, the entire auto industry is undergoing a major shift toward EVs.
There are a number of companies that could potentially capture EV market share from Tesla, including:
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Volkswagen – which is taking the EV race very seriously and plans to open six gigafactories in Europe by 2030 to increase battery production.
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Ford – which is having a lot of success with its Mustang Mach-E and recently launched an electric pick-up truck.
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GM – which plans to launch 30 EV models between now and 2025.
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Porsche – which is having success with its Taycan EV.
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Mercedes-Benz – which recently launched the EQS, the electric version of its S-Class luxury sedan.
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Volvo – which is committed to becoming a leader in the premium EV space.
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NIO – which is having success in China.
These are just some of Tesla’s rivals. There are plenty more. The higher the level of competition, the harder it is to generate and sustain a high level of profitability.
Is Tesla overvalued?
As for the valuation, it still seems high to me. At its current share price, Tesla has a market-cap of $621bn. That’s more than 10 times the market-cap of Ford ($56bn). Tesla’s market-cap equates to a price-to-sales ratio of 13. That’s a high ratio, which adds risk to the investment case.
Should I buy Tesla shares now?
Looking at Tesla’s valuation, and the threat that rivals pose, I’m going to leave Tesla shares on my watchlist for now. I just see the stock as too risky. Right now, there are plenty of other growth stocks that are a better fit for my portfolio.