Over the past couple of years, the Tesla (NASDAQ:TSLA) share price has been storming higher. At the end of August two years back, the shares were trading around $45. Now they sit above $700! However, if I had bought shares at the beginning of this year, I’d actually be flat without any profit to show for it. So is the momentum fading, or could the shares continue to rally towards $1,000 by the end of the year?
The case for $1,000
The main reason why I think the Tesla share price could continue to push higher is due to its better than expected results. Q2 results released in late July showed good growth. Revenue came in at $11.96bn, beating analyst expectations of $11.37bn.
It produced 206,421 vehicles and delivered 201,250, another record. Of note, this was over double the figures from the same period last year. This ultimately meant that Tesla exceeded $1bn of GAAP net income for the first time ever. By pushing forward, I think the stock has momentum to carry on, with $1,000 a psychological level that will be targeted by many long-term investors.
Following on from this, the Tesla share price in the past has relied on a broad retail investor following to drive the trend higher. The brand is very appealing to young and new investors alike. With the continued rise of stock buying from chat forums, I don’t see why they will fall out of love with Tesla in the short run.
Sometimes, even if a stock is potentially overvalued, speculative buying can enable it to push higher.
The case against the Tesla share price
Recently, Tesla has been caught up in issues regarding self-driving cars in the US. This comes after news that the US National Highway Traffic Safety Administration (NHTSA) is reviewing Tesla’s systems following multiple crashes into emergency vehicles. The Tesla share price fell from this (and other related news) to around $650 before rallying.
Elon Musk even tweeted in late august that the new beta self-driving software isn’t great but that it’s being worked on. I think there is a long way to go before self-driving cars have all issues smoothed out. Yet before then, the reputational damage that software issues and crashes could cause is high for Tesla shares.
Another reason why $1,000 might not be on the cards anytime soon is due to valuation. In my opinion, the Tesla share price is overvalued at current levels. Tesla has a market cap of just over $700bn. By comparison, the next largest electric car manufacturer (NIO) has a market cap of just $60bn.
GM Motors comes in at $72bn, with Ford at $53bn. Therefore, I think it’s only a matter of time before the Tesla share price moves lower (not higher) as investors adjust expectations and price targets.
Overall, I don’t think Tesla is worth $1,000 a share so struggle to see it reaching that level any time soon. As a long-term investor, I don’t see enough value even at current levels, so won’t be investing.
