Since Elon Musk became the CEO of the electric car manufacturer, Tesla, he has constantly defied expectations of investors and the media, guiding the company to become the world’s most valuable carmaker. Most notably, Tesla experienced an astronomical 695% increase in its stock price in 2020. With many new plans for expansion in 2021, many would think that this is a prime time to buy, however, there are several factors that may caution otherwise. This is a general analysis of Tesla’s stocks.
Firstly, I will analyze Tesla’s stock in terms of its quantitative values. A first major impression is the incredibly high P/E ratio. The average P/E ratio for the S&P 500 ranged from 13 to 15. Tesla has a P/E ratio of 1.56k, which means investors have very high growth expectations for the company. At the same time, such a high P/E ratio could also mean that the stock is overvalued, which is likely the case with Tesla and it could see major fluctuations in the near future. This conclusion could be further backed by the high Price-to-Book ratio at 51.1, which is once again due to high growth expectations from investors, as well as the likelihood of the stock being overvalued. Lastly, the Debt-to-Equity ratio of 2.85 exceeds the optimal value of 1 to 1.5. From this value, it can be concluded that Tesla’s stocks carry a high risk, most likely resulting from Tesla’s aggressive borrowing to fund its capital requirement.
In this second section, I will do an analysis of Tesla’s stocks based on qualitative factors. Elon Musk’s strategy of excluding dealers from the entire process and lowering production costs through minimalistic car designs is becoming very effective, leading to an exponential increase in revenue from 2016 to 2021. Combined this with Tesla’s reputation for innovation and for having a visionary personality, it puts the company in the lead against many of its competitors. However, with great fame comes fierce competition and the story is no different for Tesla, with Volkswagen, Nissan and BMW being strong competitors in the electric vehicle market. On top of this, Waymo and many other companies backed by technological giants are confronting Tesla in the race for autonomous vehicles. This immense competition put Tesla in the hot seat where it will have to fight hard to keep its top spot.
In conclusion, despite Tesla’s amazing growth over the years and Elon Musk’s boldness to defy conventions, Tesla’s stock still suffers from the glaring problem of being overvalued. Additionally, fierce competition could easily lead to another carmaker overtaking Tesla in the upcoming years. All this lead to a no-buy for Tesla stocks in its current state.