Why You Might Want To Sell Tesla Now

Why You Might Want To Sell Tesla Now

over 3 years ago2 mins

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As Tesla’s stock price soars above $2,000 – up from $220 just 12 months ago – an analysis of the company’s fundamentals reveals that implied growth expectations look wildly optimistic. Used cars, on the other hand, are selling like hot cakes… 🎂

What does this mean?

Tesla’s shares had already got a boost this summer from investors predicting sustained profitability would soon see the electric vehicle (EV) and battery company included in the US S&P 500 index. But the announcement earlier this month of an Apple-style stock split appeared to shift things up a gear; Tesla’s stock price has jumped 50% in the weeks since.

Not everyone sees this state of affairs as sustainable, however – as demonstrated by a recent report from investment research firm New Constructs. Tesla, it points out, only turns a profit due to sales of emissions credits to other automakers – and with these competitors aggressively ramping up their own EV production, that revenue will dry up even as Tesla likely loses its market-leading position.

GAAP = generally accepted accounting principles (Source: Forbes)
GAAP = generally accepted accounting principles (Source: Forbes)

Cash shortages and declining overall investment may also undermine the eccentric electrician’s long-term capacity to compete with those deep-pocketed rivals. Tesla’s current valuation implies it can capture 65% of the EV market in 2027 – which looks, like the company’s revenue, profit and production projections, baldly bold 😬

Why should I care?

When it does enter the S&P 500 charts, Tesla will land in the top ten; it’s now worth more than Walmart. But that values the company at $880,000 per car sold in the past year – 44 times the figure at Toyota (now the world’s second-most valuable automaker).

As competitors catch up on quality, battery power, and self-driving tech, New Constructs’ analysis suggests Tesla could only justify its current valuation by increasing its profitability 20-fold in the next seven years – selling many millions more vehicles at significantly lower prices.

NOPAT = net operating profit after tax (Source: Forbes)
NOPAT = net operating profit after tax (Source: Forbes)

In other words, the risks to Tesla’s present stock price are many – and now may be a good time to follow the example of the Scottish Mortgage Investment Trust in taking at least some profit from your investment and rebalancing your portfolio ⚖️

Finimizers looking for the next big thing, meanwhile, may want to note the boom in US used vehicle prices. That’s supporting significant share-price rises at (r)etail platforms Carvana, Vroom, and Carmax – and may also be good news for the American economy overall…

Used vehicle prices are up 15% since January
Used vehicle prices are up 15% since January
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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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