Tesla (TSLA) Stock Analysis & Forecast

Updated: 8th Jan 2022 Written by Sean Graytok
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Tesla was three days away from bankruptcy in 2008 and just one month from going under as recent as 2019.

Today, Wall Street’s most controversial stock is the 6th largest public company in the world by market cap.

But should you buy Tesla stock? Here’s what you need to know.

Tesla Stock Investment Potential

#1. Tesla’s Art of Storytelling

Tesla masters the art of storytelling. The company convinces its users and investors that they are pioneers of energy innovation that will change the world.

Stocks that rapidly rise on narrative trading become difficult to evaluate. Few are tougher to accurately price than Tesla stock.

Tesla’s historic run in 2020 can be summarized by famous investor John Maynard Keynes’ “Castle-in-the-Air” theory, which describes a stock that captures the imagination of the masses because they believe it to represent the next big thing.

This means that investors aren’t concerned with Tesla’s fundamentals today, but only what they will become if it delivers on its promises.

Few stocks can achieve this status on Wall Street, but the ones that do are in for quite the ride.

Tesla was traded like a meme stock before the term even existed. 

Tesla stock is incredibly volatile because the company is so difficult to price, similar to another popular asset that’s not anchored to traditional fundamentals: bitcoin.

Some investors are trading on what they believe the stock to be worth today, and others are trading on what they believe it will be worth 10-20 years from now (or just FOMO buying). The latter are confident Tesla will deliver on its lofty promises.

These ambitions are to accelerate the world’s transition to sustainable energy by engineering electric vehicles, in addition to developing infinitely scalable clean energy generation and storage, among many, many other things.

#2. Dominating the EV Market

Tesla currently holds 80% of the U.S. EV market and 18% of the global EV market. Tesla investors are counting on the company to dominate the EV market once the auto industry makes the inevitable shift to fully electric.

Of the 75 million vehicles sold last year, just 2 million were electric. In the coming years, Tesla bulls expect these numbers to flip as the largest cost components of EVs (battery pack systems) decrease with new technology.

This will make EVs significantly more affordable than their gas-powered counterparts on a like-for-like basis.

In addition to having better performance and prices, Tesla may even drive themselves. The company has been boasting about “Full Self-Driving” for years now but recently made its FSD Level 2 Beta available for “anyone that wants it.” Note that Elon Musk has been saying FSD is “two years away” since 2015.

Ford (F) is a little late to the EV party, but is now going all-in. Its release of the F-150 Lightning and Mustang Mach-E caught Wall Street’s attention, causing its stock to surge in 2021. 

#3. The Highly Debated Autonomous Robo-Taxi Fleet

The possibility of autonomous vehicles sent this stock soaring and created a “Transportation-as-a-Service” market.

Imagine having your Tesla drop you off at work, and while you’re at the office, it is driving around doing pick-ups and drop-off for others as a service, getting you paid and acting as a robo taxi on your behalf.

This makes you wonder about the future of car ownership. Is owning a car necessary if there’s an affordable fleet of robo-taxis on a 24/7 patrol?

>> Related: Best ARK Funds to Buy

#4. Tesla Insurance

Tesla could also disrupt a percentage of the insurance industry by providing more accurate policies to its drivers.

In theory, Tesla’s data collection on its customer’s driving speed, braking, and road or weather conditions could generate a unique “driver score” and offer insurance policies based on a host of metrics.

However, insurance is a tough market to enter and Tesla has not taken any material steps to turn this into a reality. 

#5. New Products

Tesla is also trying to roll out an autonomous platoon of electric semi-trucks to disrupt the trucking industry.

According to the U.S. Census Bureau, truck driving is the most common job in 29 out of the 50 United States and generates over $700 billion every year.

Tesla has flaunted the semi in marketing events, but has not announced any official plans for the semi fleet. 

#6. Tesla and China

Tesla’s gaze extends beyond the United States – its aggressively pursuing the Chinese market.  

Tesla’s Shanghai Gigafactory began producing Model 3s in 2019 and plans to produce 500,000 vehicles annually for Chinese consumers.

While the Shanghai-made Model 3 quickly became China’s best-selling electric vehicle shortly after its launch, Chinese regulatory agencies are concerned about several problems with the cars, including “abnormal acceleration” and “battery fires.”

Remember, competition in this market is fierce. Several Chinese EV companies are vying for market share, including Nio, Xpeng, and Li Auto.

#7. Tesla as an Energy Company

Tesla isn’t just a car company; it’s an energy company. We believe that it will have to disrupt the energy industry with its battery technology for Tesla to reach its full potential.

The cars generate buzz and build brand awareness, but Tesla’s energy generation and storage technology can change the world.

For example, Tesla is plugging a secret mega-battery into the same Texas power grid that faltered in February’s freeze. This marked Tesla’s first major move into the heart of the U.S. energy economy.

As you can see, there’s an endless number of factors that are trying to be priced into the stock – time will tell which ones come to fruition.

>> More: Best Electric Vehicle ETFs

Tesla Stock Moat

A company’s “moat” typically refers to its competitive advantage over other businesses in its sector, which allows it to protect its market share and profitability.

Tesla’s most notorious moat is its founder and CEO Elon Musk. Simply put, no other car maker or energy company has Elon Musk as its CEO. For many, a bet on Tesla is a bet on Elon.

Famous investor Ray Dalio describes standout leaders, like Elon, as “shapers” or someone who comes up with unique and valuable visions and builds them out beautifully, typically over others’ doubts and opposition.

Elon is the founder or co-founder of multiple companies: PayPal (PYPL), Tesla, SpaceX, SolarCity, The Boring Company, Hyperloop, and Neuralink.

Many are waiting for SpaceX, or its potential spinoff Starlink, to go public sometime soon.

However, virtually all of Elon’s wealth is tied up in Tesla stock, so if the company fails, he will too.

While some criticize Musk’s controversial decisions as the company’s face, others appreciate him having real skin in the game and leading from the ground floor (often in the factory).

The belief in Elon strengthens the company’s following, similar to Steve Jobs and Apple (AAPL) back in the day.

Tesla’s loyal customer base serves as its advertisers by signifying a unique combination of wealth and concern for the environment.

Driving a Tesla means you’re rich enough to afford a $100,000 car, and you care about the future of the planet. What other car manufacturer can do this for their customers?

The last moat we’ll identify for Tesla is its massive pool of data that it’s been collecting for nearly two decades.

Artificial Intelligence experts agree that those with the largest data pool will win the AI race, which is a great sign for Tesla and why it’s one of the best AI stocks

The company has been able to iterate on its products for years and improve after each update. While Tesla’s been sharpening its sword since 2003, other car makers don’t even have an EV for sale yet.

Tesla Stock Analysis

Another thing to consider before buying Tesla stock is its recent earnings report. Let’s look at the highlights from Tesla’s last earnings call:

  • Earnings per share: $1.86 vs. $1.59 expected
  • Revenue: $13.76 billion vs. $13.63 billion expected 
  • Automotive revenue: $12.06 billion
  • Energy business revenue: $806 million 
  • Services & other revenue: $894 million 

Despite semiconductor shortages and global supply chain constraints, Tesla had another fantastic quarter. 

Tesla’s strong performance is a result of its commitment to vertically integrate its operations over the last decade. f

Tesla Bear Case

It’s important to consider both sides of the argument before buying a stock, so let’s explore some of the bear cases for Tesla stock.

First and foremost, Tesla failing to grow into its valuation is its biggest bear case.

Tesla accounts for less than 1% of the global auto market in terms of value. Yet, the stock is worth multiples more than any other automaker.

Another Tesla bear case is its less efficient supply chain (in certain areas) compared to the likes of Ford, Toyota, and GM.

Tesla bears believe that once these legacy names devote more attention to EVs, their long-established supply chains will overshadow Tesla’s capabilities.

Tesla Competitors

Tesla doesn’t spend a dollar on advertising. In fact, Elon Musk despises advertising: “Tesla does not advertise or pay for endorsements. Instead, we use that money to make the product great.”

On the other hand, Tesla’s competitors in the traditional auto industry spend a fortune on advertising and endorsements. Let’s look at some of Tesla’s biggest competitors:

  • Nio (NIO)
  • Volkswagen (OTC: VWAGY)
  • Ford (F)
  • Li Auto (LI)
  • General Motors (GM)
  • BYD Company (OTC: BYDD.F)
  • Toyota 
  • Every other car company

Here are some other EV-related startups gunning for a piece of Tesla’s market share:

  • Workhorse Group (WKHS)
  • Canoo Holdings (CNOO)
  • Lordstown Motors (RIDE)
  • Chargepoint Holdings (CHPT)
  • Lithium Americas Corp. (LAC)
  • Churchill Capital IV Corp (CCIV)

This market is still very young – remember that EVs accounted for less than 3% of all vehicles sold last year. This industry will be a bloodbath in the coming years.

Tesla Stock Allocation in Your Portfolio

The right amount of Tesla stock in your portfolio depends on your investing goals, time horizon, and risk appetite. This mix of factors will vary greatly from person to person.

We do not recommend having too much exposure to any individual stock, especially one as volatile as Tesla.

A proven investing strategy is buying broad market ETFs, like the S&P 500, and enjoying an average annual return of 8-11%.

Investors looking for more narrow exposure to tech, while maintaining some level of diversification may consider the Nasdaq-100 index fund (QQQ) or ARK’s flagship fund ARKK

>> More: Join The Motley Fool Stock Advisor & see their top 10 stocks to buy right now. 

How to Buy Tesla Stock

Buying Tesla stock is simple – here’s what you need to do:

#1. Open an Account with a Broker

There are several great brokerage firms where you can buy and sell Tesla. We recommend new investors use Vanguard or Charles Schwab because of their stellar reputations.

Additionally, we advise investors to prioritize their Roth IRA or Traditional IRA over their brokerage account for tax purposes.

#2. Fund Your Account

Funding your account on Vanguard or Charles Schwab will require your bank’s account and routing number. Once connected, simply deposit the amount of funds you wish to buy Tesla stock.

#3. Buy Tesla Stock

Search for the ticker “TSLA” and enter the amount of shares you want to buy.

There are different types of buy orders, but the “market order” will execute immediately  after you place the buy order.

Note that trading platforms like Robinhood allow you to buy fractional shares of Tesla, meaning that you can invest as little as $1 in the energy company.

>> Related: Best Stock Trading Platforms

Bottom Line: Should I Buy Tesla Stock?

Tesla’s stock price getting cut in half is as believable as it doubling over the next decade.

Bet on either side of the coin at your own risk. However, history has not been favorable to those that have bet against Elon. 

More Investing Resources:

This article is for informational purposes only. It is not intended to be investment advice.

Sean Graytok
Sean Graytok

Sean Graytok is our Co-Founder and is a recognized expert in investing, cryptocurrency, and financial management. His work has been cited in leading industry publications, such as InvestorsPlace and Business Insider. Sean is interested in the people and companies who are driving financial innovation.