Tesla stock’s up 19% in 2023! Should I invest?

So far in 2023, Tesla stock has jumped by almost a fifth. Our writer considers the longer-term picture — and explains his next move.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Electric cars charging in station

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Electric vehicles (EVs) made by Tesla (NASDAQ: TSLA) are well known for their rapid acceleration. But that is not the only thing about the company that has been gaining speed lately. Tesla stock has jumped 19% since the year started less than three weeks ago.

That comes after a period of poor performance. Tesla stock has fallen 61% over the past year.

Still, looking at the chart, I wonder if in future we might look back on early 2023 as the moment the EV stock turned the corner and started moving upwards again.

Considering that, should I buy some for my portfolio now?

Good news and bad news

I think the move upwards reflects a renewed burst of optimism from some investors. I see good reasons behind that. In the final quarter of last year, Tesla delivered over 405,000 vehicles to buyers. Deliveries last year showed annual growth of 40%, with production up 47%.

Tesla’s manufacturing footprint has expanded, enabling it to keep ramping up output this year. The company’s keenly awaited pickup truck model is currently slated to start rolling off the manufacturing line this year. The end of pandemic restrictions in China could also help the company as it seeks to grow strongly in that market.

All of those things could help boost revenues at the company, potentially helping to support the Tesla stock price. But there is bad news too.

Rivals are aggressively launching their own EVs. I expect the market to grow strongly in 2023, with Tesla just one player among many. The company has been sharply cutting its selling prices. That could boost sales volumes, but at the cost of revenues — and profitability.

Valuing Tesla stock

Even if the business does well in 2023 however, that still might not mean Tesla stock has a good year ahead of it.

After the admittedly flying start to 2023, Tesla now has a market capitalisation of over $400bn. That is well below its peak. Last January, the company reached a valuation of $1.2tn.

The market-cap still looks too high to me. It is almost 100 times last year’s net income. That dizzying price-to-earnings ratio could become even higher if big price cuts lead to smaller profits this year.

By contrast, rival Ford has a market capitalisation of $50bn despite making $17bn last year. Admittedly, that was an exceptionally good performance for the old timer. Ford is growing its EV business but I think Tesla has important differences, from its brand to a more focused business model.

But the valuation of Tesla stock is still too high for my tastes.

Not buying

For that reason, I have no plans to add Tesla stock to my portfolio. I am impressed by the business’ phenomenal growth rates and think it has a strong future. But that in itself does not make it a good investment at the current price.

Until I feel more comfortable with its valuation, Tesla simply is not a good fit for my investing style. For that to happen, the share price needs to come down, or earnings will need to balloon.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »