Buy Tesla Stock Now? 4 Opportunities to Consider
Should I buy Tesla stock? Is a fantastic question that many potential investors are asking these days and with good reason. It is the textbook classic growth stock with many enthusiastic investors willing to pay the asking price in order to own a piece of this company. If we look only at the numbers, it is very easy to conclude the stock is over priced. However, before passing final judgment on the company we need to consider the growth prospects and future opportunities. Because in the end I think you’ll conclude there is potential in this one!
Due Diligence
First let’s give our due diligence a chance and consider the headline numbers:
On March 18, 2020 it was trading at $72.24 (split adjusted) and as of writing this article on January 25, 2021 it is currently priced at $846.64. The company is currently valued at over $800B dollars and only four companies in the U.S. are valued higher: Apple, Microsoft, Amazon, and Facebook.
Revenue
When you compare Tesla’s revenue against these fellow corporate giants you begin to think maybe they are out of their league:
Tesla Is Getting Profitable
Tesla has a reputation of not being profitable and yet promising substantial growth. Which works for a time until the message gets old. Good news, Tesla is turning a profit. Just barely. However, this also means the screws have been tightened and expectations are higher to see consistent earnings growth. Even more so now with their addition to the S&P 500 stock index.
So lets take a look at their quarterly earnings numbers for the last 5 years:
So, Tesla has been on the right track and for the last 5 quarters and they need to keep this trend going. More importantly, consider these recent profit numbers have been achieved during the COVID-19 pandemic. Because of this, once restrictions are lifted, bets are the trend will get even stronger.
Tesla Stock is Entirely Valued for Future Prospects
The easiest assets to value and price correctly are the ones that have stable and predictable cashflows and income. Certainly government bonds are the clear textbook example here. Now, on the other hand, we have Tesla. Incredible growth prospects, which we will get into a bit later today, but the profits and cashflows are unpredictable. Just look a the chart above! It swings wildly between making profits and losing money. This makes it difficult to determine what a fair value and price for the stock should be. This makes it more volatile and therefore there should be great opportunities to buy this stock on dips and corrections in the months that come.
Tesla is not a Value Stock
Let’s not confuse or muddy the waters. Tesla is a growth stock which borders on speculative. Which is completely okay if we’re trying to find a great company with a fantastic future to invest in. So let’s look at some of these opportunities that Tesla can get into and generate fantastic returns for investors. I think you’ll quickly see just why the stock is priced so high already!
Tesla Is Not Just a Car Company
As promising as the Electric Vehicle (EV) space is, Tesla is not just a car manufacturing company. Firstly, they have four great lines of business that could stand on their own. Secondly, these are all backed by a strong political and social tailwind which almost certainly will force them towards terrific returns for investors. So consider these when asking if you should buy Tesla stock this year.
Bread and Butter: They Sell Cars – Wonderful Cars
If you have driven or ridden in a Tesla you know exactly what I mean by describing them as Wonderful Machines. They are without hyperbole one of the most impressive vehicles to drive. While the handling is second to none, quite likely because of the heavy centered battery, the instant torque will blow your mind when you stomp on the accelerator.
If you haven’t driven one, then go book yourself a test drive. I’m confident you will want one and the only things stopping you will be the price and a concern on charging stations.
Interesting Facts on Tesla Vehicles
- No other sedan in the U.S. is generating more revenue than the Tesla Model 3.
- While the vehicle most susceptible to Tesla adoption is the BMW 3 Series.
- The vehicle brand least susceptible to Tesla is Ford. Can Cybertruck change this?
- They have one of the highest levels of owner satisfaction of any vehicle – EVER.
- Tesla also enjoys one of the highest levels of brand loyalty of any auto manufacturer.
- Their best marketers and promoters are the owners themselves.
Tesla can’t build the Model 3 fast enough which is actually a real problem and the number one reason they aren’t growing their earnings faster. If they can master their production line they will grow non-stop for the next 15 years. Bet on it – Elon Musk will accomplish this as everything rides on it. Why should you buy Tesla stock now? Their core business line is compelling, high demand for their products, and their supply problems can be fixed; but wait for a pull back.
Opportunity: Autonomous Network
While it is true Tesla vehicles are capable of self driving or “Autopilot” as they call it, this is really just the first step. In many ways this first step is a proof of concept and method to collect data from its drivers. Did you know when you park your Tesla, it uploads the drive data to a central server for analysis and improvement of their current autopilot algorithms?
A True Solution is in Mind
Autopilot is just a means to the end of building a fully functional autonomous network of self-driving cars. See the quick video below of what a Tesla sees as it drives itself.
Robotaxi
Tesla is on the verge of rolling out their Robotaxi program. It was due out in 2020 but COVID-19 changed that. Probably a good thing, and it buys them some time to further refine the algorithms. Robotaxi will directly compete against Uber and other ride sharing programs. Owners of Tesla vehicles will be allowed to “rent” out their vehicle and let it go and drive people around town.
Stay home, watch some Netflix, buy some Bitcoin, eat a Beyond Meat Burger, and have your vehicle earn you some money.
Tesla will allow owners to add their properly equipped vehicle to its own ride-sharing app, which will have a similar business model to Uber. Tesla will take 25 percent of revenue from those rides. In places where there aren’t enough people to share their cars, Tesla would provide a dedicated fleet of robotaxis.
Think of what this will do for vehicle sales!
At-Home Delivery with Autonomous Cars
The Autonomous network of self driving cars also provides ample opportunity to displace the current at-home delivery model for of food and products ordered online. Should I buy some Tesla stock? I think grabbing a few just to take advantage of this opportunity could be a good idea. I do believe this service will take a long time to successfully roll out but this could be a real catalyst for people buying Tesla vehicles knowing they can rent them out.
Opportunity: Power Generation & Electric Grid Operation
There is currently a worldwide push towards renewable energy. Electrical power generation is unique in that none of it is currently stored: current load is continually balanced against generation in real time. This equation is easily balanced when you have stable power generation from fossil fuels or nuclear. However, renewables are intermittent and there are times when renewable power produces more or less than what is required. When we replace fossil fuel power generators with unpredictable, but renewable energy sources, the electrical grid becomes unstable.
Powerpack is an Answer
Peak Shaving
Stored energy in the battery pack can be released during peak energy demand and thereby reduce energy costs. However, this can be difficult if the load is too too much for too long and the battery exhausts itself before the load is reduced. As a result buyers of these Powerpacks will need quite a few cells.
Load Shifting
Shift energy consumption from one point in time to another point in time. This means the battery cells discharge their energy while prices are high, and then recharge when the prices drop. Even if the energy source is from fossil fuels, this can still be beneficial and thereby spread energy load.
Emergency Backup
This is an obvious one. When the grid goes down the Powerpack can step in and discharge the battery until the grid is restored. To sum it up quick, this is just like a backup diesel generator but certainly better for the environment!
Demand Response
The stored load in the battery can be quickly discharged and balance off sharp load spikes when signaled from Electric system operators. This can be very profitable for the owner of the pack as electric grid operators pay handsomely for this service. Moreover, it improves the stability of the electrical grid and maintains their desired 60Hz AC at all times.
So, should you buy Tesla stock this month based on Powerpack? I think this reason alone should be a trigger because big industrial clients and governments will be willing to spend money on these. Consider that they will want these on the grid so they can install even more renewable green energy and rely on Powerpacks to stabilize the grid.
Opportunity: Solar Panels
Over the next 10 years there will be a big push into renewable energy sources such as solar. While solar can deliver tremendous amount of usable energy, it does require a large footprint. So, what if there was someway to leverage our existing urban infrastructure? I hope it comes as no surprise that Tesla has an idea for this too!
What About Your Roof?
Many homes in the world are often angled just right and has at least one or two surfaces that offer reliable daily exposure to the sun. So, while this may not be a perfect solution it can certainly reduce our collective reliance on fossil fuel power generation.
There certainly are current solar panel solutions for our homes but they come with some undesirable problems. Firstly, many solar panels for home installation are clunky, hideous, and expensive. Secondly, they need to installed on top of an already existing roof. Lastly, they only work when the sun is shining and this can happen when you don’t need the electricity. For example, when you’re at work during the day, your panel is useless because you don’t need the energy.
Tesla’s Solar Value Proposition
Tesla’s value proposition is three fold: make it look good, make it always work while the sun is shining, and make it cost effective.
Solar Aesthetics
Tesla’s V3 solar panels look just like a normal black roof shingle. Look at the picture above and you’re looking at the solar panel. The entire black roof is an active solar panel. What we don’t see, however, is the other side of the house which is in the shade and doesn’t need solar panels Here they install identical but inactive shingles so the entire rooftop is uniform. Use an aesthetically pleasing panel that can be used on 30-40% of the roof where the sun shines, and on the other 60-70% use an identical non-solar shingle which obviously costs less but looks the same.
Solar Charging – Powerwall
So hooked up to the side of your house goes the Powerwall. This is a high capacity battery that gets charged when the sun is shining but you’re not using the electricity it generates. So, say you’re at work, but the sun is out and intense. This battery would be busy working with your solar panels getting charged up while you’re at work busy doing your job. When you come home and the sun is down, you can run off this battery and even charge your EV. In short, it gets to a point where you’re running your house off solar energy; either by real-time generation, or energy that was stored in the battery.
Some interesting Powerwall Facts
- Install it outdoors or indoors
- Stores 13.5kWh
- Discharges up to 5kWh continuous but can also do up to 7kWh peak for spikes
- Chain up to 10 powerwalls together to increase capacity as needed
- Full warranty: 30 year
Cost Effective
Two of the biggest blocks to solar energy adoption is the initial cost and long paybacks. Tesla promises this current setup will cost approximately $1.99 a watt. With a return on investment taking about 10 years until breakeven. Sure, this sounds less than ideal, but this is actually an industry best as most panel installations take up to 15 years to breakeven. Tesla’s idea to solve this is to install the panels when you’re building new or you have to replace your roof. In this scenario your incremental cost is much lower because you have to build or replace the roof anyways.
So, should you buy Tesla stock now in light of their solar line of business? On one hand I love their solution for solar coupled with a battery. However, on the other hand, I don’t find this to be a compelling high demand product as not many want to replace their roof. Maybe the Powerwall will get some legs and find other use cases? Or maybe the new Biden administration will increase the incentives to make this more appealing?
Opportunity: Biden & Political Clean Energy
An analysis and look into the business opportunities for Tesla cannot be finished without looking at the catalysts and powerful tailwinds pushing it forward. Because we can easily see that Tesla is a wonderful business, but on top of even that, the political and environmental movements are literally creating demand for these products and they have money to spend.
Green New Deal
The Vision
- Sourcing 100% of the country’s electricity from renewable and zero-emissions power
- Building or upgrading to “smart” power grids
- Creating millions of high-wage jobs in the green economy
- Overhauling infrastructure with electric vehicles and public transport including high-speed rail
- Upgrading all existing buildings to achieve maximum energy efficiency
- Building resiliency against climate change-related disasters
- Restoring forests to remove greenhouse gases from the atmosphere
- Working with farmers to cut emissions from the agricultural sector
Now line this vision up against what products and services Tesla supplies. It’s a clear and massive win. Should the Government proceed forward with this plan Tesla will mint a fortune of wealth for their investors. It’s not likely that all points will be delivered on as envisioned but even if they made steady progress on each Tesla will do extremely well. So should you buy Tesla stock now based on future government programs and spending? It’s a no brainer; but wait for a pullback or correction.
Conclusion
Should I buy Tesla stock is a question all avid investors and most car enthusiasts have asked over the last two or three years. Every single one of them that did, and have held until today, have been handsomely rewarded. Subsequently, anyone who has been made a millionaire on the back of Tesla stock is called a Teslanaire.
Way back in June 2010 Tesla went public with an initial share price of $17 a share. At the time of writing this article it is priced at $864.16, and this is after the 5:1 split! This gives an annual CAGR of 68.75%. Given its rapid share price rise, even more surprising given it has come during a global pandemic, Tesla critics say it is overvalued.
“Tesla shares are in our view and by virtually every conventional metric not only overvalued, but dramatically so”.
~JPMorgan
So, before you pass your final judgement and decide whether or not Tesla is a good fit for your portfolio, just know its a very polarizing investing topic. This is because it has an incredible future ahead if it can execute on its plans, and meet demand for their products.
My Personal Playbook
I believe the stock is very overpriced, but I would love to own a piece of this wonderful company. Because of this, when there is a solid correction or dip, I would step in and pick up some shares. As I believe the stock is due for a sharp correction, this opportunity might present in 2021. Famous last words, as some $20B was lost by short sellers in 2020 by betting against Tesla. So, I wouldn’t short Tesla, but wait for a better price and allocate no more than 2% of my portfolio.
Current Exposure
I currently own 4 shares of Tesla by virtue of my holding the ITOT ETF.
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