Can Tesla Deliver Millionaire Luck?
Can Tesla Deliver Millionaire Luck?
For the initial 10 months of 2024, Tesla's shares (TSLA, -4.95%) remained relatively unchanged, despite the significant volatility it demonstrated. This was a concerning sight for investors, especially considering that the Nasdaq 100 index increased by 18% during the same period.
However, since the November 5 presidential election, Tesla's shares have experienced a significant surge of 77%. At this point (December 18), the stock is only 8% away from its all-time high, driven by its robust momentum.
As we look ahead, one might wonder if Tesla holds the potential to turn millionaires.
Rearview Mirror Check
I would not dispute the fact that early Tesla shareholders have significantly benefited from their investments. Over the past decade, the stock has skyrocketed by 3,110%, yielding an incredible return that any investor would be thrilled with. This means that investing around $31,000 in Tesla in mid-December 2014 would have translated into a substantial $1 million today. Indeed, Tesla has proven itself as a millionaire-maker in the past.
Tesla's success can be attributed to its ability to disrupt the conventional automobile industry. While the Model S sports sedan was introduced in 2012, the company now offers a total of five unique and tech-advanced passenger vehicle models. These models have gained popularity due to their distinctive designs and innovative features appreciated by consumers.
The growth pace has been impressive. In the third quarter of 2024 (Sept. 30), the company reported revenue of $25.2 billion, representing a 300% increase compared to the same period five years prior. During the same time frame, Tesla went from delivering 97,000 vehicle units in Q3 2019 to 463,000 in the most recent quarter. This puts the company at a 17% global market share in the EV industry.
It's also noteworthy that Tesla's cost advantages and premium brand position help it consistently turn a profit. Over the past five years, the quarterly gross margin and operating margin have averaged 19.9% and 10.2%, respectively. Tesla's financial performance exceeds that of legacy automakers, whose EV segments continue to sully their bottom lines with losses in the billions.
Keep an Eye on the Road Ahead
Investors who have been hesitant to jump on the Tesla bandwagon may be wondering if the stock can continue its remarkable run in the coming years. It's easy to be critical of this perspective.
Tesla's recent stock surge is often linked to CEO Elon Musk's close association with President-elect Donald Trump. With the expectation of favorable regulatory policies related to autonomous driving technology, the market is potentially anticipating a hassle-free future for Tesla.
For what it's worth, the company aims to launch ride-sharing services in California and Texas in the following year. If the legal landscape becomes more accommodating, Tesla could venture into numerous other markets in the near future.
Even if one were optimistic about the prospect of autonomous driving technology becoming a commercial success through the combination of Tesla operating a firm robotaxi fleet and selling self-driving vehicles to the masses, it's challenging to justify this optimism without considering that it's already priced into the current valuation.
At present, Tesla's forward P/E ratio stands at an astonishing 177. It's breathtaking to consider that this multiple was only 27 at the start of the year. Clearly, investor sentiment has undergone a dramatic shift in a positive direction. When a forward P/E ratio is as high as Tesla's, there is no margin for error.
Facing the reality of the present, it's evident that Tesla remains an automaker that is exposed to macroeconomic factors and fierce competition. This perspective should provide some context.
While the market leader in EVs has proven to be a millionaire-maker in the past, new investors interested in joining the Tesla journey today might find it challenging to join the seven-figure club with their recent investments, given the sky-high valuation.
Despite the high valuation, Tesla's impressive performance in recent months and its potential in the autonomous driving sector makes it an attractive investment for some. However, with a forward P/E ratio of 177, the margin for error is slim, and joining the seven-figure club may be challenging for new investors due to the stock's current high price. In light of Tesla's history of major returns, managing finance wisely and strategically when investing in the company could yield significant rewards.