Tesla (NASDAQ:) has been one of the best-performing stocks since becoming a publicly traded company. Some would argue that this company’s growth trajectory is incredible, considering all the hurdles Tesla has faced over the years.
From a price of $17 in 2010, Tesla stock now trades at more than $750 per share. This means early investors that have simply held onto their initial investment now have unrealized gains of 4,312% in a little over a decade. (See TSLA stock charts on TipRanks)
That’s certainly incredible. However, investors thinking that Tesla could continue to explode from here may need to check themselves. Tesla’s $755-billion valuation roughly approximates the combined value of the largest major auto makers, including fellow American rivals General Motors (NYSE:) and Ford (F).
Is this valuation warranted? Can Tesla stock not only grow into this valuation, but potentially continue to see capital appreciation from here? These are the main questions investors have. I am neutral on the stock.
Let’s dive into where Tesla stock may be headed from here.
Ultra-Bears See a House of Cards
Tesla certainly has its fair share of skeptics. A rather loud community of “TSLAQ” bears have materialized online. These individuals added a Q to the end of Tesla’s ticker symbol to signify bankruptcy. Some bears have gone so far as to state they believe Tesla and its CEO are outright frauds.
That’s perhaps taking it a bit too far. Tesla CEO Elon Musk is certainly eccentric. His stated lack of respect for the SEC has gotten him in trouble from time to time. However, one could also certainly make the argument that Musk has almost single-handedly given rise to an EV movement many saw as impossible in the early 2000s.
That said, the fact that Tesla’s valuation identifies TSLA stock as more of a technology play than an auto manufacturer rubs some fundamentals-oriented investors the wrong way. It’s true that Tesla’s main source of revenue and earnings is from making its EVs.
While the technology component to Tesla’s model is important, the extent to which this technology will reign supreme over the long-run remains to be seen.
Let’s take a look at some other issues bears have with Tesla stock right now.
Competition, Safety Issues Make Tesla’s Valuation a Hard Sell
Tesla’s relatively low share of the U.S. and global auto market is one of the key factors many investors point to as a reason why TSLA stock is overvalued. Sure, Tesla’s growth rate trumps any major car maker right now. However, extrapolating out when this growth rate will slow is the key factor many bulls simply don’t want to contend with.
Indeed, Tesla’s growth rate will have to slow at some point. As companies grow larger, slower growth becomes inevitable. The market for any product or service is only so big.
Additionally, increased competition in the EV space from incumbent auto makers stands to stymie some of Tesla’s momentum. Ford F-150 lightning is a real threat to Tesla’s Cybertruck. And a whole slew of European luxury auto makers are making serious headway in the sedan and SUV markets in Europe, Asia and North America.
Tesla’s not the only game in town any more, despite what the company’s valuation suggests.
Additionally, various safety concerns have once again been put out front and center for investors to consider. The National Highway Traffic Safety Administration has launched a probe into various crashes involving Teslas, eyeing how the company’s assisted-driving technology may have been a key factor in these crashes.
While bulls suggest nothing is likely to come from the probe, it’s certainly worrisome nonetheless. Any sort of delay in Musk’s vision to have “full self-driving” (FSD) technology allowed by regulators could result in a valuation hit for Tesla.
Wall Street’s Take
As per TipRanks’ analyst rating consensus, TSLA stock is a Hold. Out of 25 ratings, there are 12 Buy recommendations, seven Hold recommendations, and six Sell recommendations.
The average TSLA price target is $697.90. The stock price targets range between a low of $150 per share, to a high of $1,200 per share.
How high Tesla stock can go from here remains to be seen. Indeed, capital has tended to chase winners in this market.
However, should this momentum cool, Tesla bears may be vindicated in their views. There’s a lot of meat on the bearish argument against Tesla stock.
While many of these concerns may be overdone, it’s important investors consider both sides of any trade before jumping in. Such is certainly the case with Tesla stock right now.
Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article
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