Is it Worth Investing in Tesla Stocks when the Price is Under $450?
Tesla (TSLA -0.57%) has been on a remarkable journey, with shares nearly doubling in the past few months. Investors are bullish on the electric vehicle (EV) company's future, expecting big things over the coming years. Tesla's innovative spirit has pushed it into new markets, like autonomous vehicles and humanoid robotics.
Stock price surges can be powerful, but the question remains: How high will Tesla's shares go? Ultimately, the business's fundamentals will either support its rising share price or act as a counterweight.
Should you purchase Tesla stock while it's trading under $450 per share? Here's what you need to know.
Tesla's ascension isn't solely driven by its EV business
One of the most frequent arguments supporting the stock is that Tesla isn't like other automotive manufacturers. Due to its other segments, some investors view it as a technology company. The anticipated Cybercab and autonomous vehicle fleet, along with Optimus (humanoid robotics), could each represent tremendous opportunities over the next decade.
This seemingly positive outlook has likely fueled the stock's strong performance. Moreover, Elon Musk's cooperation with the Trump administration could potentially facilitate the launch of Tesla's autonomous ride-hailing business. Since the Nov. 5 election, the stock price has skyrocketed nearly 70%.
Musk anticipates ride-sharing commencement in Texas and California this year, with the Cybercab entering mass production in 2026. Simultaneously, he aims to commence selling Optimus robots in 2026. The company is still developing the robot's localized artificial intelligence, which enables it to understand and process its surroundings. This technology shares similarities with Tesla's full self-driving, and Musk recently declared that Tesla now possesses the necessary computing capacity to continue enhancing it.
Excitement abounds, but comes with questions
Musk believes that Tesla's long-term value hinges on these emerging segments more than on its existing vehicle business. However, investors should be cautious about detaching the future from the present. Despite a decrease in annual production volume for the first time in 2024, Tesla's vehicle business still generates virtually all of the company's revenue and profits.
There's also a strong incentive to brand Tesla as a technology company rather than an automotive firm. Its valuation heavily outperforms that of any of its peers. For instance, Tesla currently trades at over 15 times sales, whereas Toyota generates higher gross profit margins but has a more modest price-to-sales multiple (P/S) of less than 1. Yes, Tesla is expanding rapidly, but can this justified valuation disparity be justified?
What's the takeaway? Tesla boasts an intriguing technological upside, but this aspect is already priced into the share price. Investors are unaware of:
- Whether Tesla will deliver on these products.
- When they might have a meaningful impact on the company's financials.
- Their profitability.
The possibility exists that Tesla executes masterfully over the next few years, brings these products to market, and the stock remains stagnant while the company's financials catch up to the valuation. Conversely, if the release is delayed or fails altogether, the market may lose support for such a lofty valuation.
Should you invest in Tesla stock now?
Tesla's Cybercab and Optimus could potentially be highly profitable from the outset, causing the stock to soar further.
Investing involves taking calculated risks based on various outcomes. Given existing information, I believe there are more potential scenarios where Tesla's stock generates subpar returns from the current prices than vice versa. While I acknowledge that Tesla transcends the traditional automotive sector, purchasing shares without proper justification is ill-advised.
The stock should not be purchased at any price under $450 per share – at least not until the financial fundamentals support it.
Investors inclined towards Tesla may find better opportunities if the market becomes less volatile. Therefore, patience is essential to give the company's current momentum room to develop. If you're concerned about missing the boat, consider buying gradually over time, leaving sufficient reserves to cover potential declines.
The potential launch of Tesla's autonomous ride-hailing business and the anticipated Cybercab and Optimus robots could significantly increase Tesla's revenues in the coming years, making it an attractive investment opportunity for those willing to take calculated risks. However, given the current price of $450 per share, it might be prudent to wait until the financial fundamentals support this valuation before making an investment, as there are more potential scenarios where Tesla's stock generates subpar returns than vice versa.
Despite Tesla's innovative segments generating significant interest and potential profitability, it's crucial to remember that the company's vehicle business, which accounts for nearly all of its revenue and profits, is still its main source of income. Therefore, investors should approach Tesla stock purchases thoughtfully, considering both the short-term and long-term financial implications of their investment decisions.
