Tesla (NASDAQ: TSLA) has experienced a remarkable surge, with its stock price nearly doubling in recent months. The market has high expectations for the electric vehicle (EV) maker, anticipating significant developments in areas such as autonomous driving and humanoid robotics in the near future.
The momentum in Tesla’s stock price is notable. Predicting how high it will rise is uncertain, but ultimately, the core financial health of the company will either sustain this growth or cause the stock to plummet.
Considering purchasing Tesla shares while they are trading below $450 each? Here’s what you should consider.
Key Factors Elevating Tesla’s Stock Beyond EV Manufacturing
A popular argument for the company’s strong stock performance is that Tesla is not merely an automaker. Its expansions into other technological areas lead some to view it as a tech firm. Projects like the Cybercab (part of an autonomous fleet plan) and Optimus (humanoid robotics) are seen as potentially huge growth areas in the coming decade.
This diversification is likely a significant driver behind the recent stock rally. CEO Elon Musk’s alignment with the Trump administration may theoretically smooth the regulatory path for launching its autonomous taxi service. Since the November 5th election, Tesla’s stock has jumped almost 70%.
Musk has predicted that ride-sharing services will start in Texas and California this year, with large-scale production of the Cybercab expected by 2026.
He also aims to commence sales of the Optimus robots in 2026. The development of these robots includes advanced localized artificial intelligence (AI), enabling them to interpret and interact with their environment. This AI technology relates closely to Tesla’s full self-driving (FSD) capabilities, which Musk has recently indicated are supported by sufficient computing power for ongoing development.
Promising Yet Uncertain Ventures
Musk contends that the real long-term value of Tesla will come from these new ventures rather than from its current car business. However, investors should be cautious about overly disconnecting future prospects from present realities. The company’s automotive segment, despite a recent drop in annual production volumes for the first time in 2024, still accounts for nearly all of Tesla’s revenue and profits.
Identifying Tesla as a tech company also strategically inflates its valuation significantly above that of traditional car manufacturers. For instance, Tesla trades at more than 15 times its sales, while Toyota, which has higher gross profit margins, trades at a sales multiple of less than 1. Yes, Tesla is growing more quickly, but is this enough to justify such a stark valuation disparity?
Data by YCharts.
What should you take from this? Tesla offers an attractive technology upside, but this potential is already reflected in its current stock price. Investors also remain uncertain about:
- If Tesla will deliver on these new products.
- When these products might significantly impact the company’s finances.
- The profitability of these new ventures.
There are realistic scenarios where Tesla successfully launches these products in the next few years and the stock does not move much as financials gradually align with the market valuation. Alternatively, the rollout could be delayed or fail, potentially leading to a loss of market support for such a high valuation.
Is Now the Right Time to Invest in Tesla?
It’s possible that Tesla’s new products like Cybercab and Optimus could be immediately profitable, driving the stock price even higher.
Investing often involves educated speculation on various potential outcomes. Based on current information, there appear to be more scenarios where the stock might not perform well from its current level than scenarios where it would. Tesla is indeed more than just an automaker, but that doesn’t justify an indiscriminate investment at any price.
At nearly $450 per share, the stock doesn’t seem like a wise purchase until the financial fundamentals provide stronger support.
For those interested in owning Tesla shares, better opportunities might arise if the broader market cools down. Thus, patience is advisable to let the current momentum unfold. If you’re concerned about missing out, consider investing gradually, keeping some funds available for buying during any future dips.
Justin Pope does not own shares in any mentioned companies. The Motley Fool owns and recommends Tesla. The Motley Fool has a disclosure policy.
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Passionate about analyzing economic markets, Alice M. Carter joined THE NORTHERN FORUM with a mission: to make financial concepts accessible to everyone. With over 10 years of experience in economic journalism, she specializes in global economic trends and US financial policies. She firmly believes that a better understanding of the economy is the key to a more informed future.