I once owned some shares of Tesla (NASDAQ: TSLA), but sold them a few years ago because I thought they’d become overvalued. In hindsight, that was a big mistake. The stock is up 800% since I sold it! But with the shares tumbling 50% this year, I’m wondering whether I should buy Tesla stock again.
The power of a story
Nobel Prize-winning psychologist Daniel Kahneman once said: “No one ever made a decision because of a number. They need a story.”
On Tesla’s latest earnings call, CEO Elon Musk set out his story regarding how large he thinks the company could become. He claimed that Tesla has the potential to one day be worth more than Apple and Saudi Aramco combined. That’s certainly a bold statement, given those two companies are currently valued at over $2trn each.
Let’s consider the numbers, though. New factories in Texas and Germany came online this year, doubling the firm’s manufacturing capacity. And in its Q3 results, Tesla reported that revenue grew 56% year on year, to $21.5bn. Its free cash flow soared 148% to a record $3.3bn.
There’s uncertainty at the moment about how ongoing Covid-19 lockdowns in China will impact Q4. Tesla’s Shanghai factory now accounts for around a quarter of all sales, so problems there could cause further volatility in the share price.
What about Apple and Saudi Aramco?
Saudi Aramco is the largest oil company in the world. In its most recent Q3 results, the company reported a staggering net income of $42.4bn. Meanwhile, over the same period, Apple posted $20.7bn in profit on revenue of $90.1bn.
These are astonishingly large numbers and show just how far Tesla has to go to reach such levels of profitability. That’s not to say Tesla doesn’t have the opportunity to do so. The global EV market is expected to reach $1.56trn by 2030, according to Nova One Advisor.
Telsa aims to produce 20m cars per year by 2030, up from about 1.5m per year today. This suggests the company is just scratching the surface of its overall market opportunity.
Is Elon Musk spinning too many plates?
One concern I have is that Elon Musk might be taking on too much. That’s because as well as running Tesla, he’s also in charge at rocket pioneer SpaceX. He’s heavily involved in two smaller firms (Neuralink and The Boring Company) and if that wasn’t enough, he’s now the CEO of Twitter.
The risk here is that he’s overstretching himself. Investors also appear concerned, with Tesla shares down 47% since Musk announced he’d buy Twitter back in April.
Will I buy the stock?
I don’t ever think Tesla will ever reach the profitability of, say, Saudi Aramco. But I don’t think it necessarily needs to in order for the stock to still do well over the long term. I was impressed with Tesla’s recent AI Day, where it showcased the talent it has in robotics and artificial intelligence.
I’m going to keep Tesla stock on my watchlist. It’s $200 per share today. If the price drops much further, I’m going to buy some shares and start building my position from there.
